As filed with the Securities and Exchange Commission on April 30, 1999
Registration Nos. 33-5033
811-4642
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 27 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 30 [X]
(CHECK APPROPRIATE BOX OR BOXES)
----------------
THE PHOENIX EDGE SERIES FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
----------------
101 MUNSON STREET, GREENFIELD, MASSACHUSETTS 01301
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
C/O VARIABLE PRODUCTS OPERATIONS
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
(800) 447-4312
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------
COPIES TO:
THOMAS N. STEENBURG EDWIN L. KERR, ESQ.
VICE PRESIDENT, COUNSEL AND SECRETARY C/O PHOENIX HOME LIFE MUTUAL
PHOENIX DUFF & PHELPS CORPORATION INSURANCE COMPANY
56 PROSPECT STREET ONE AMERICAN ROW
HARTFORD, CT 06115 HARTFORD, CT 06115
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
It is proposed that this filing will become effective (check appropriate
box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] On May 1, 1999 pursuant to paragraph (b), or
[ ] 60days after filing pursuant to paragraph (a)(i)
[ ] On ( ) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] On pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
THE PHOENIX EDGE SERIES FUND
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS (PART A) AND
STATEMENT OF ADDITIONAL INFORMATION (PART B)
OF INFORMATION REQUIRED BY FORM N-1A
PURSUANT TO RULE 495(A)
PART A
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
-------------- ------------------
<S> <C> <C>
1. Cover Page................................................. Cover Page
2. Synopsis................................................... Introduction
3. Condensed Financial Information............................ Financial Highlights
4. General Description of Registrant.......................... Introduction; Investment Objectives and Policies; Other
Special Investment Methods; The Fund Its Management
5. Management of the Fund..................................... The Fund and Its Management; Custodian, Transfer Agent
and Dividend Paying Agent
6. Capital Stock and Other Securities......................... The Fund and Its Management; Shares of Beneficial Interest;
Dividends and Distributions; Taxes
7. Purchase of Securities Being Offered....................... Purchase of Shares; Net Asset Value; Redemption of Shares
8. Redemption or Repurchase................................... Purchase of Shares; Net Asset Value; Redemption of Shares
9. Pending Legal Proceedings.................................. Not Applicable
PART B
FORM N-1A ITEM STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------------- -------------------------------------------
10. Cover Page................................................. Cover Page
11. Table of Contents.......................................... Table of Contents
12. General Information and History............................ The Phoenix Edge Series Fund; Investing in the Fund
13. Investment Objectives and Policies......................... Investment Policies; Investment Restrictions;
Portfolio Turnover
14. Management of the Fund..................................... Management of the Fund
15. Control Persons and Principal Holders of Securities........ Management of the Fund
16. Investment Advisory and Other Services..................... Management of the Fund; The Investment Adviser
17. Brokerage Allocation and Other Practices................... Brokerage Allocation
18. Capital Stock and Other Securities......................... Investing in the Fund; Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered.................................. Determination of Net Asset Value; Investing in the Fund;
Redemption of Shares
20. Tax Status................................................. Taxes
21. Underwriters............................................... Not Applicable
22. Calculation of Yield Quotations of Money
Market Funds.............................................. Money Market Series
23. Financial Statements....................................... Financial Statements
</TABLE>
<PAGE>
THE PHOENIX EDGE
SERIES FUND
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT:
[envelope] PHOENIX VARIABLE PRODUCTS
MAIL OPERATIONS
PO Box 8027
Boston, MA 02266-8027
[telephone] Tel. 800/541-0171
PROSPECTUS MAY 1, 1999
The Phoenix Edge Series Fund (the "Fund") is an open-end management
investment company which is intended to meet a wide range of investment
objectives with its 15 separate Series. Generally, each Series operates as if it
were a separate fund.
The shares of the Fund are not directly offered to the public. You can
invest in the Fund only by buying a Variable Accumulation Annuity Contract or a
Variable Universal Life Insurance Policy offered by Phoenix Home Life Mutual
Insurance Company ("Phoenix"), PHL Variable Insurance Company ("PHL Variable"),
or Phoenix Life and Annuity Company ("PLAC"), and directing the allocation of
your payment(s) to the Subaccount(s) corresponding to the Series in which you
wish to invest. The Subaccounts, in turn, invest in shares of the Fund. Not all
Series may be offered through a particular Contract or Policy. The Fund also
offers its shares through other Phoenix products.
This prospectus describes each of the Series and provides important
information you should know before investing in any Series of the Fund. You
should read this prospectus carefully and keep it for future reference.
MANAGED BY
PHOENIX INVESTMENT COUNSEL, INC.
[diamond] Phoenix Research Enhanced Index Series
[diamond] Phoenix-Aberdeen International Series
[diamond] Phoenix-Engemann Nifty Fifty Series
[diamond] Phoenix-Goodwin Balanced Series
[diamond] Phoenix-Goodwin Growth Series
[diamond] Phoenix-Goodwin Money Market Series
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income Series
[diamond] Phoenix-Goodwin Strategic Allocation Series
[diamond] Phoenix-Goodwin Strategic Theme Series
[diamond] Phoenix-Hollister Value Equity Series
[diamond] Phoenix-Oakhurst Growth and Income Series
[diamond] Phoenix-Seneca Mid-Cap Growth Series
[diamond] Phoenix-Schafer Mid-Cap Value Series
MANAGED BY
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
[diamond] Phoenix-Aberdeen New Asia Series
MANAGED BY
DUFF & PHELPS INVESTMENT MANAGEMENT CO.
[diamond] Phoenix-Duff & Phelps Real Estate Securities Series
We are offering this product only where we may lawfully do so. You should
rely only on the information contained in this document or in one that we have
referred you to. We have not authorized anyone to provide you with information
that is different.
These securities have not been approved or disapproved
by the Securities and Exchange Commission, nor has the Commission determined if
this prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
Phoenix Edge Series Fund 1
<PAGE>
TABLE OF CONTENTS
Heading Page
- ---------------------------------------------------------------
PHOENIX RESEARCH ENHANCED INDEX SERIES.................... 3
Investment Risk and Return Summary ...................... 3
Series' Expenses ........................................ 3
Financial Highlights..................................... 4
PHOENIX-ABERDEEN INTERNATIONAL SERIES..................... 5
Investment Risk and Return Summary ...................... 5
Series' Expenses ........................................ 6
Financial Highlights..................................... 6
PHOENIX-ABERDEEN NEW ASIA SERIES ......................... 7
Investment Risk and Return Summary ...................... 7
Series' Expenses ........................................ 8
Financial Highlights..................................... 9
PHOENIX-DUFF & PHELPS REAL ESTATE
SECURITIES SERIES ....................................... 10
Investment Risk and Return Summary ...................... 10
Series' Expenses......................................... 11
Financial Highlights..................................... 11
PHOENIX-ENGEMANN NIFTY FIFTY SERIES....................... 12
Investment Risk and Return Summary ...................... 12
Series' Expenses ........................................ 12
Financial Highlights..................................... 13
PHOENIX-GOODWIN BALANCED SERIES .......................... 14
Investment Risk and Return Summary ...................... 14
Series' Expenses ........................................ 15
Financial Highlights..................................... 16
PHOENIX-GOODWIN GROWTH SERIES ............................ 17
Investment Risk and Return Summary ...................... 17
Series' Expenses ........................................ 18
Financial Highlights..................................... 19
PHOENIX-GOODWIN MONEY MARKET SERIES ...................... 20
Investment Risk and Return Summary ...................... 20
Series' Expenses ........................................ 21
Financial Highlights..................................... 22
PHOENIX-GOODWIN MULTI-SECTOR FIXED
INCOME SERIES............................................ 23
Investment Risk and Return Summary ...................... 23
Series' Expenses ........................................ 24
Financial Highlights..................................... 25
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES............... 26
Investment Risk and Return Summary ...................... 26
Series' Expenses ........................................ 27
Financial Highlights..................................... 28
PHOENIX-GOODWIN STRATEGIC THEME SERIES ................... 29
Investment Risk and Return Summary ...................... 29
Series' Expenses ........................................ 30
Financial Highlights..................................... 31
PHOENIX-HOLLISTER VALUE EQUITY SERIES .................... 32
Investment Risk and Return Summary ...................... 32
Series' Expenses ........................................ 33
Financial Highlights..................................... 33
PHOENIX-OAKHURST GROWTH AND INCOME SERIES................. 34
Investment Risk and Return Summary ...................... 34
Series' Expenses ........................................ 35
Financial Highlights..................................... 35
PHOENIX-SCHAFER MID-CAP VALUE SERIES ..................... 36
Investment Risk and Return Summary ...................... 36
Series' Expenses ........................................ 36
Financial Highlights..................................... 37
PHOENIX-SENECA MID-CAP GROWTH SERIES ..................... 38
Investment Risk and Return Summary ...................... 38
Series' Expenses ........................................ 39
Financial Highlights..................................... 40
ADDITIONAL DISCUSSION OF EACH SERIES' INVESTMENT
STRATEGIES AND MANAGEMENT................................ 41
Phoenix Research Enhanced Index Series................... 41
Phoenix-Aberdeen International Series.................... 42
Phoenix-Aberdeen New Asia Series......................... 45
Phoenix-Duff & Phelps Real Estate Securities Series...... 48
Phoenix-Engemann Nifty Fifty Series...................... 51
Phoenix-Goodwin Balanced Series.......................... 52
Phoenix-Goodwin Growth Series............................ 55
Phoenix-Goodwin Money Market Series...................... 58
Phoenix-Goodwin Multi-Sector Fixed Income Series......... 60
Phoenix-Goodwin Strategic Allocation Series.............. 62
Phoenix-Goodwin Strategic Theme Series................... 64
Phoenix-Hollister Value Equity Series.................... 67
Phoenix-Oakhurst Growth and Income Series................ 71
Phoenix-Schafer Mid-Cap Value Series..................... 74
Phoenix-Seneca Mid-Cap Growth Series..................... 76
INVESTMENT RESTRICTIONS................................... 80
PORTFOLIO TURNOVER........................................ 80
THE FUND AND ITS MANAGEMENT............................... 80
SHARES OF BENEFICIAL INTEREST............................. 80
NET ASSET VALUE........................................... 81
TAXES..................................................... 81
APPENDIX.................................................. 82
2 Phoenix Edge Series Fund
<PAGE>
PHOENIX RESEARCH ENHANCED INDEX SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVE
The Phoenix Research Enhanced Index Series has an investment objective to
seek high total return by investing in a broadly diversified portfolio of equity
securities of large and medium capitalization companies within the market
sectors found in the S&P 500.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] Under normal conditions, the Series will invest at least 80% of its
total assets in common stocks and other equity securities.
[diamond] The Series will invest in securities believed by the adviser to be
undervalued and which offer growth potential.
[diamond] The Series will evaluate each of the economic sectors represented in
the S&P 500
[bullet] industrial
[bullet] financial
[bullet] public utilities
[bullet] transportation
and exclude securities in any sector the adviser believes to be
extremely overvalued.
PRINCIPAL RISKS
If you invest in this Series you risk that you may lose your investment.
The Series will be invested primarily in common stocks, and the value of the
Series investments are expected to fluctuate in the same way as the S&P 500 and
the stock market generally.
The Series asset values may be affected by general economic declines,
declines in industries and changes in interest rates.
Share values also may decline if the specific companies selected for Series
investment fail to perform as the adviser expects, regardless of general
economic trends, industry trends, interest rates and other economic factors.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix Research Enhanced Index Series. The bar chart shows
changes in the Series' performance from year to year over its life.(1) The table
below shows how the Series' average annual returns for one year and the life of
the Series compare to those of a broad-based securities market index. The
Series' past performance is not necessarily an indication of how the Series will
perform in the future.
PHOENIX RESEARCH ENHANCED INDEX SERIES
[GRAPHIC OMITTED]
CALENDAR YEAR ANNUAL RETURN (%)
1998 31.68
(1) The Series' average annual returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if such charges were deducted. During the
period shown in the chart above, the highest return for a quarter was 22.09%
(quarter ending December 1998) and the lowest return for a quarter was
-9.67% (quarter ending September 1998).
- ----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS ONE LIFE OF
(FOR THE PERIOD ENDING 12/31/98) YEAR THE SERIES(1)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Phoenix Research Enhanced Index
Series 31.68% 25.40%
- ----------------------------------------------------------------
S&P 500 Index(2) 28.76% 23.42%
- ----------------------------------------------------------------
(1) Since July 15, 1997.
(2) The S&P 500 Index is an unmanaged, but commonly used measure of stock market
total return performance. The index is not available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees .45%
Distribution and Service (12b-1) Fees None
Other Expenses .37%
-----------
TOTAL ANNUAL SERIES' OPERATING EXPENSES(1) .82%
====
(1) Phoenix Investment Council has agreed to reimburse the Series for the
amount, if any, by which the Series' operating expenses other than the
management fee for any fiscal year exceeds 0.10%. Actual Total Annual Series
Operating Expenses after expense reimbursement were .55% for the year ending
December 31, 1998.
Phoenix Research Enhanced Index Series 3
<PAGE>
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------
Phoenix Research
Enhanced Index $84 $262 $455 $1,014
Series
- --------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED 7/15/97 TO
12/31/98 12/31/97
-------- --------
<S> <C> <C>
Net asset value, beginning of period............................................ $ 10.49 $ 10.00
Income from investment operations
Net investment income (loss).................................................. 0.12(2) 0.05(2)
Net realized and unrealized gain (loss)....................................... 3.19 0.54
---- ----
Total from investment operations............................................ 3.31 0.59
---- ----
Less distributions
Dividends from net investment income.......................................... (0.12) (0.05)
Dividends from net realized gains............................................. (0.60) (0.05)
------ ------
Total distributions......................................................... (0.72) (0.10)
------ ------
Change in net asset value....................................................... 2.59 0.49
---- ----
Net asset value, end of period.................................................. $ 13.08 $ 10.49
========= =========
Total Return.................................................................... 31.68% 5.83%(3)
Ratios/supplemental data:
Net assets, end of period (thousands)......................................... $ 69,522 $ 30,851
Ratio to average net assets of:
Operating expenses............................................................ 0.55% 0.55%(1)
Net investment income......................................................... 1.08% 1.46%(1)
Portfolio turnover rate......................................................... 45% 9%3
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.03
and $0.02 per share, respectively.
(3) Not annualized.
4 Phoenix Research Enhanced Index Series
<PAGE>
PHOENIX-ABERDEEN INTERNATIONAL SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVES
Phoenix-Aberdeen International Series has an investment objective of high
total return consistent with reasonable risk. There is no guarantee that the
Series will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The adviser will invest primarily in corporate stock of established
non-U.S. companies believed to have potential for capital growth,
income or both. Under normal circumstances, the Series will invest at
least 80% of its total assets in non-U.S. issuers located in not less
than three countries.
[diamond] The Series may invest any amount for capital growth or for income. In
determining whether assets will be invested for capital growth or for
income, the adviser will analyze the international equity and fixed
income markets and assess the degree of risk and level of return that
can be expected from each market.
[diamond] The Series may invest in convertible securities, preferred stock,
bonds, notes and other debt instruments of companies and obligations
of domestic or foreign governments.
[diamond] The Series may invest up to 10% of its total assets in below
investment grade bonds, or so-called "junk bonds."
[diamond] The Series may engage in certain options transactions, and enter into
futures contracts and related options for hedging purposes, invest in
repurchase agreements and engage in "securities lending."
[diamond] The Series may invest in small companies as well as large companies.
[diamond] The Series may invest in companies in foreign countries with "emerging
markets."
PRINCIPAL RISKS
If you invest in this Series, you risk that you may lose your investment.
The Series will seek to increase the value of your shares by investing in
securities the adviser expects to have potential for capital growth or income or
both. Most of the Series' investments will be in common stocks and other equity
investments. Conditions affecting the overall economy, specific industries or
companies in which the Series invests can be worse than expected. As a result,
the value of your shares may decrease. Increases in interest rates affecting the
global economy, particular industries or specific companies can cause fixed
income investments that the Series may own to decline in value. This, too, can
cause your share value to decrease.
Unlike many other funds, this Series may make significant investments in
companies in foreign countries and in foreign governments, including some
"emerging market" countries (those with markets that are not fully developed).
Political and economic uncertainty as well as relatively less public information
about investments may negatively impact the Series' portfolio. Some investments
may be made in currencies other than U.S. dollars that will fluctuate in value
as a result of changes in the currency exchange rate. Foreign markets and
currencies may not perform as well as U.S. markets. Emerging market countries
and companies doing business in emerging markets may not have the same range of
opportunities as countries and their companies in developed nations. They also
may have more obstacles to financial success.
This Series also may invest in small companies as well as larger companies.
Smaller companies, regardless of their location, may be affected to a greater
extent than larger companies by changes in general economic conditions and
conditions in particular industries. Smaller companies also may be relatively
new and not have the same operating history and "track record" as larger
companies. This could make future performance of smaller companies more
difficult to predict.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Aberdeen International Series. The bar chart shows
changes in the Series' performance from year to year over an 8-year period.(1)
The table below shows how the Series' average annual returns for one and five
years and for the life of the Series compare to those of a broad-based
securities market index. The Series' past performance is not necessarily an
indication of how the Series will perform in the future.
PHOENIX-ABERDEEN INTERNATIONAL SERIES
[graphic omitted]
CALENDAR YEAR ANNUAL RETURN (%)
1991 19.78
1992 -12.89
1993 38.44
1994 0.03
1995 9.59
1996 18.65
1997 12.04
1998 27.92
(1) The Series' average annual returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if such charges were deducted. During the
8-year period shown in the chart above, the highest return for a quarter was
22.89% (quarter ending March 1998) and the lowest return for a quarter was
-18.81% (quarter ending September 1990).
Phoenix-Aberdeen International Series 5
<PAGE>
- ---------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS
(FOR THE PERIOD ONE FIVE LIFE OF
ENDING 12/31/98) YEAR YEARS THE SERIES(1)
- ---------------------------------------------------------------
Phoenix-Aberdeen
International Series 27.92% 13.27% 11.01%
- ---------------------------------------------------------------
MSCI EAFE Index(2) 20.33% 9.50% 8.32%
- ---------------------------------------------------------------
(1) Since May 1, 1990.
(2) The Morgan Stanley Capital International EAFE Index is an unmanaged,
commonly used measure of foreign stock fund performance, which includes net
dividends reinvested. Total return figures are net of foreign withholding
taxes. The EAFE Index is an aggregate of 19 individual country indexes in
Europe, Australasia, New Zealand and the Far East.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM THE SERIES' ASSETS)
Management Fees .75%
Distribution and Service (12b-1) Fees None
Other Expenses .23%
-------------
TOTAL ANNUAL SERIES' OPERATING EXPENSES .98%
====
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- ---------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Phoenix-Aberdeen
International $100 $312 $542 $1,201
Series
- ---------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 14.53 $ 14.52 $ 12.70 $ 11.85 $ 12.21
Income from investment operations
Net investment income..................................... 0.12(1) 0.12(1) 0.11(1) 0.12(1) 0.08(1)
Net realized and unrealized gain (loss)................... 3.94 1.61 2.25 1.02 (0.07)
---- ---- ---- ---- ------
Total from investment operations........................ 4.06 1.73 2.36 1.14 0.01
---- ---- ---- ---- ----
Less distributions:
Dividends from net investment income...................... -- (0.22) (0.19) (0.04) (0.03)
Dividends from net realized gains......................... (3.13) (1.50) (0.33) (0.25) (0.34)
Distributions from paid-in capital........................ -- -- -- -- --
In excess of net investment income........................ -- -- (0.02) -- --
------ ------ ------ ------ ------
Total distributions..................................... (3.13) (1.72) (0.54) (0.29) (0.37)
------ ------ ------ ------ ------
Change in net asset value................................... 0.93 0.01 1.82 0.85 (0.36)
---- ---- ---- ---- ------
Net asset value, end of period.............................. $ 15.46 $ 14.53 $ 14.52 $ 12.70 $ 11.85
========= ========= ========== ========== ==========
Total Return................................................ 27.92% 12.04% 18.65% 9.59% 0.03%
Ratios/supplemental data:
Net assets, end of period (thousands)..................... $ 241,915 $ 194,108 $ 172,668 $ 134,455 $ 134,627
Ratio to average net assets of:
Operating expenses........................................ 0.98% 1.01% 1.04% 1.07% 1.10%
Net investment income..................................... 0.72% 0.72% 0.80% 0.95% 0.64%
Portfolio turnover rate..................................... 93% 184% 142% 249% 172%
</TABLE>
(1) Computed using average shares outstanding.
6 Phoenix-Aberdeen International Series
<PAGE>
PHOENIX-ABERDEEN NEW ASIA SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVE
Phoenix-Aberdeen New Asia Series has an objective of long-term capital
appreciation from a diversified portfolio invested primarily in equity
securities of issuers located in at least three different countries located in
Asia, other than Japan. There is no guarantee that the Series will achieve its
objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] Under normal circumstances, the Series will invest at least 65% of its
total assets in common stocks, preferred stocks and convertible
securities of issuers organized and principally operating in Asia,
excluding Japan.
[diamond] The adviser will seek out equity securities of companies that it
believes have the potential to appreciate.
[diamond] The Series will invest in countries having more established markets in
region of Asian countries. The Asian countries ordinarily will consist
of three or more of the following:
[bullet] China [bullet] Hong Kong
[bullet] India [bullet] Indonesia
[bullet] South Korea [bullet] Malaysia
[bullet] Pakistan [bullet] Philippines
[bullet] Singapore [bullet] Sri Lanka
[bullet] Taiwan [bullet] Thailand
In determining distribution of investments among markets the adviser will
consider relative
[diamond] prospects for growth
[diamond] levels of inflation
[diamond] price levels
[diamond] government policies affecting business
[diamond] currency stability
The Series may invest in developing and emerging market countries.
PRINCIPAL RISKS
If you invest in this Series, you risk that you may lose your investment.
The Series will seek to increase the value of your shares by investing in
securities the adviser expects to increase in value. Most of the Series'
investments will be in common stocks and other equity securities. Conditions
affecting the global or local economy, specific industries or companies in which
the Series invests can be worse than expected. As a result, the value of your
shares may decrease. Decreases in share value from day to day will be "paper"
losses unless you actually sell your shares. If your financial circumstances are
likely to require you to sell your shares at any particular time, rather than
holding them indefinitely, you run the risk that your sale of shares will occur
when share values have declined.
The Series may invest in companies with medium capitalizations. It also may
invest in small companies as well as large companies. Investments in companies
with small and medium capitalizations make the Series more volatile than fund's
which invest in companies with larger capitalizations. The smaller companies may
be affected to a greater extent than larger companies by changes in general
economic conditions and conditions in particular industries. Smaller companies
also may be relatively new and not have the same operating history and "track
record" as larger companies. This could make future performance of smaller
companies more difficult to predict.
The Series may invest in below investment grade securities (so called "junk
bonds"). Below investment grade securities present a greater risk that the
issuer will not be able to make interest or principal payments on time. If this
happens, the Series would lose income and could expect a decline in the market
value of the securities.
The Series will invest in companies in foreign countries. Political and
economic uncertainty as well as less public information about investments may
negatively impact the Series' portfolio. Some investments may be made in
currencies other than U.S. dollars that will fluctuate in value as a result of
changes in the currency exchange rate. Foreign markets and currencies may not
perform as well as U.S. markets.
The Series may invest in illiquid securities that cannot be sold quickly.
Illiquid securities may have a lower value than comparable securities that have
active markets for resale, and they can lose their value more quickly under
unfavorable conditions.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Aberdeen New Asia Series. The bar chart shows changes
in the Series' performance from year to year over the life of the Series.(1) The
table below shows how the Series' average annual returns for one year and for
the life of the Series compare to those of a broad-based securities market
index. The Series' past performance is not necessarily an indication of how the
Series will perform in the future.
Phoenix-Aberdeen New Asia Series 7
<PAGE>
PHOENIX-ABERDEEN NEW ASIA SERIES
[graphic omitted]
CALENDAR YEAR ANNUAL RETURN (%)
1997 -32.39
1998 -4.44
(1) The Series' average annual returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if such charges were deducted. During the
period shown in the chart above, the highest return for a quarter was 24.18%
(quarter ending December 1998) and the lowest return for a quarter was
-23.85% (quarter ending December 1997).
- --------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIOD ENDING LIFE OF
12/31/98) ONE YEAR THE SERIES(1)
- --------------------------------------------------------------
Phoenix-Aberdeen New Asia
Series (4.44)% (17.33)%
- --------------------------------------------------------------
MSCI AC Asia Pacific Ex
Japan Index(2) (5.21)% (16.44)%
- --------------------------------------------------------------
(1) Since September 17, 1996.
(2) Morgan Stanley Capital International All Country Asia Pacific (excluding
Japan) Index is a market-value weighted average of the performance of
securities listed on the stock exchanges of 14 countries in Asia and the
Pacific Basin. Performance is calculated on a total return basis, as
reported by Frank Russell Company.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees 1.00%
Distribution and Service (12b-1) Fees None
Other Expenses 1.50%
------------
TOTAL ANNUAL SERIES' OPERATING EXPENSES(1) 2.50%
=====
(1) The Series' investment adviser has agreed to reimburse through December 31,
1999 the Phoenix-Aberdeen New Asia Series' operating expenses other than
Management Fees and Distribution and Service Fees to the extent that such
expenses exceed 0.25% of the average net assets of the Series. Actual Total
Annual Fund Operating Expenses after expense reimbursement were 1.25% for
the year ending December 31, 1998.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- ----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------
Phoenix-Aberdeen
New Asia Series $253 $779 $1,331 $2,836
- ----------------------------------------------------------------
Note: Your actual expenses would be lower than those shown in the tables
above since the expense levels used to calculate the figures shown do not
include the reimbursement of expenses over certain levels by the Series'
investment adviser.
8 Phoenix-Aberdeen New Asia Series
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 9/17/96 TO
1998 1997 12/31/96
---- ---- --------
<S> <C> <C> <C>
Net asset value, beginning of period............................................. $ 6.44 $ 9.96 $ 10.00
Income from investment operations
Net investment income.......................................................... 0.13(1,4) 0.15(1) 0.05(1)
Net realized and unrealized gain (loss)........................................ (0.41) (3.36) (0.04)
------ ------ ------
Total from investment operations............................................. (0.28) (3.21) 0.01
------ ------ ----
Less distributions:
Dividends from net investment income........................................... (0.03) (0.15) (0.05)
Dividends from net realized gains.............................................. -- (0.01) --
In excess of net investment income............................................. -- (0.10) --
Tax return of capital.......................................................... -- (0.05) --
------ ------ ------
Total distributions.......................................................... (0.03) (0.31) (0.05)
------ ------ ------
Change in net asset value........................................................ (0.31) (3.52) (0.04)
------ ------ ------
Net asset value, end of period................................................... $ 6.13 $ 6.44 $ 9.96
======= ======= ==========
Total Return..................................................................... (4.44)% (32.39)% 0.16%(3)
Ratios/supplemental data:
Net assets, end of period (thousands).......................................... $ 9,510 $10,017 $ 11,585
Ratio to average net assets of:
Operating expenses............................................................. 1.25% 1.25% 1.25%(2)
Net investment income.......................................................... 2.09% 1.63% 2.40%(2)
Portfolio turnover rate.......................................................... 46% 27% 2%(3)
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.08,
$0.07 and $0.03 per share, respectively.
(2) Annualized.
(3) Not annualized.
(4) Computed using average shares outstanding.
Phoenix-Aberdeen New Asia Series 9
<PAGE>
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVE
The Phoenix-Duff & Phelps Real Estate Securities Series has an investment
objective of capital appreciation and income with approximately equal emphasis.
There is no guarantee that the Series will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The Series intends to invest at least 75% of its total assets in
marketable securities of publicly traded real estate investment trusts
("REITs") and companies that are principally engaged in the real
estate industry.
[diamond] The Series may invest in common stock, rights or warrants to purchase
common stock, preferred stock and convertible debt.
[diamond] The Series may invest up to 85% of its total assets in
[bullet] marketable debt securities of companies principally engaged
in the real estate industry
[bullet] mortgage-backed securities
[bullet] short-term investments
[diamond] For defensive purposes the Series may invest up to 100% of its total
assets in short-term investments. When this happens, the Series may
not achieve its investment objective.
[diamond] The Series may invest in equity or debt securities of foreign
companies or governments.
[diamond] The Series may invest in repurchase agreements and engage in
"securities lending."
PRINCIPAL RISKS
[diamond] If you invest in this Series you risk that you may lose your
investment.
[diamond] The Series is "non-diversified"; there is no limit on the percentage
of Series assets that may be invested in the securities of any one
issuer.
[diamond] Value of Series assets will fluctuate in response to changes in
economic conditions within the real estate industry, including, among
other things, possible declines in real estate values, general and
local economic conditions, availability of mortgage funds and natural
disasters.
[diamond] Equity REITs may be affected by changes in the value of underlying
property owned by the REIT. Mortgage REITs may be affected by the
quality of any credit extended. All REITs are dependent on the quality
of management skills.
[diamond] REITs and companies principally engaged in the real estate industry
are subject the effects of to fluctuations in interest rates.
[diamond] Investing in REITs involve risks similar to those associated with
investing in small capitalization companies.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Duff & Phelps Real Estate Securities Series. The bar
chart shows changes in the Series' performance from year to year since its
inception.(1) The table below shows how the Series average annual returns for
one year and for the life of the Series compare to those of a broad-based
securities market index. The Series' past performance is not necessarily an
indication of how the fund will perform in the future.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES
[graphic omitted]
CALENDAR YEAR ANNUAL RETURN (%)
1996 33.09
1997 22.05
1998 -21.19
(1) The Series' average annual returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if such charges were deducted. During the
period shown in the chart above, the highest return for a quarter was 17.66%
(quarter ending December 1996) and the lowest return for a quarter was
-13.12% (quarter ending September 1998).
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIOD ENDING ONE LIFE OF
12/31/98)(1) YEAR THE SERIES(2)
- ---------------------------------------------------------------
Phoenix-Duff & Phelps Real
Estate Securities Series (21.19)% 11.84%
- ---------------------------------------------------------------
NAREIT Equity Index(3) (17.50)% 12.68%
- ---------------------------------------------------------------
(1) The Series' average annual returns in the table above do not reflect the
deduction of any separate account or contract charges.
(2) Since May 1, 1995.
(3)The National Association of Real Estate Investment Trusts (NAREIT) Index is
an unmanaged, commonly used indicator of REIT performance.
10 Phoenix-Duff & Phelps Real Estate Securities Series
<PAGE>
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees .75%
Distribution and Service (12b-1) Fees None
Other Expenses 0.26%
-----------
TOTAL ANNUAL SERIES' OPERATING EXPENSES(1) 1.01%
=====
(1) Duff & Phelps Investment Management Co. and/or PIC have agreed to reimburse
the Series operating expenses for the amount, if any, such operating
expenses other than the management fees for any fiscal year exceed 0.25% of
the average net assets of the Series. Actual Total Annual Series Operating
Expenses after expense reimbursement were 1.00% for the year ending December
31, 1998.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- ---------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Phoenix-Duff &
Phelps Real Estate $103 $322 $558 $1,236
Securities Series
- ---------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/95 TO
1998 1997 1996 12/31/95
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.......................... $ 16.38 $ 14.32 $ 11.33 $ 10.00
Income from investment operations
Net investment income....................................... 0.78(3) 0.50(3) 0.50(3) 0.33(3)
Net realized and unrealized gain (loss) .................... (4.20) 2.62 3.14 1.42
------ ---- ---- ----
Total from investment operations.......................... (3.42) 3.12 3.64 1.75
------ ---- ---- ----
Less distributions:
Dividends from net investment income........................ (0.65) (0.48) (0.50) (0.33)
Dividends from net realized gains........................... (0.02) (0.58) (0.15) (0.06)
Tax return of capital....................................... (0.01) -- -- (0.03)
------ ------ ------ ------
Total distributions....................................... (0.68) (1.06) (0.65) (0.42)
------ ------ ------ ------
Change in net asset value..................................... (4.10) 2.06 2.99 1.33
------ ---- ---- ----
Net asset value, end of period................................ $ 12.28 $ 16.38 $ 14.32 $ 11.33
========= ========= ======== ==========
Total Return.................................................. (21.19)% 22.05% 33.09% 17.79%(2)
Ratios/supplemental data:
Net assets, end of period (thousands)....................... $ 36,408 $ 54,659 $ 22,710 $ 8,473
Ratio to average net assets of:
Operating expenses.......................................... 1.00% 1.00% 1.00% 1.00%(1)
Net investment income....................................... 5.07% 3.59% 4.36% 4.80%(1)
Portfolio turnover rate....................................... 18% 41% 21% 10%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of
$0.002, $0.01, $0.05 and $0.07 per share, respectively.
Phoenix-Duff & Phelps Real Estate Securities Series 11
<PAGE>
PHOENIX-ENGEMANN NIFTY FIFTY SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVE
The Phoenix-Engemann Nifty Fifty Series has an investment objective of
long-term capital appreciation. There is no guarantee that the Series will
achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The Series invests in approximately 50 different securities which, in
the opinion of the adviser, offer the best potential for long-term
growth of capital.
[diamond] At least 75% of the Series' total assets will be invested in common
stocks of high quality growth companies.
[diamond] Up to 25% of the Series' total assets may be invested in common stocks
of small corporations with rapidly growing earnings per share or
common stocks believed to be undervalued.
PRINCIPAL RISKS
If you invest in this Series you risk that you may lose your investment.
The Series will seek to increase the value of your shares by investing in
securities the adviser expects to increase in value. The Series' investments
will be in common stocks. Conditions affecting the overall economy, specific
industries or companies in which the Series invests can be worse than expected.
As a result, the value of your shares may decrease.
The Series will invest significantly securities issued by small companies.
Smaller companies, regardless of their location, may be affected to a greater
extent than larger companies by changes in general economic conditions and
conditions in particular industries. Smaller companies also may be relatively
new and not have the same operating history and "track record" as larger
companies. This could make future performance of smaller companies more
difficult to predict.
Since the Series contains securities of a limited number of companies, it
may be more sensitive to changes in the market value of a single issuer or
industry in its portfolio. Consequently, the net asset value per share of the
Phoenix-Engemann Nifty Fifty Series may fluctuate substantially. The Series may
not be appropriate for short-term investors.
PERFORMANCE TABLES
The Phoenix-Engemann Nifty Fifty Series has been in existence only since
March 2, 1998 and thus has not had an annual return for one full calendar year.
The table below shows how the Series' average annual return since inception
compares to that of a broad-based securities market index for that period. You
should expect that the Series' performance will fluctuate from year-to-year,
sometimes significantly. The Series' past performance is not necessarily an
indication of how the Series will perform in the future.
- --------------------------------------------------------------
TOTAL RETURN LIFE OF THE
(FOR THE PERIOD ENDING 12/31/98)(1) SERIES(2)
- --------------------------------------------------------------
Phoenix-Engemann Nifty Fifty Series 26.26%
- --------------------------------------------------------------
S&P 500 Index(3) 18.95%
- --------------------------------------------------------------
(1) The Series' total return in the table above does not reflect the deduction
of any separate account or contract charges. The return would have been less
than those shown if such charges were deducted.
(2) Since March 2, 1998.
(3) The S&P 500 Index is an unmanaged, but commonly used measure of stock market
total return performance. The Index is not available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees .90%
Distribution and Service (12b-1) Fees None
Other Expenses 1.68%
------------
TOTAL ANNUAL SERIES' OPERATING EXPENSES(1) 2.58%
=====
(1) Phoenix Investment Council has agreed to reimburse the Series for the
amount, if any, by which the Series' operating expenses other than the
management fee for any fiscal year exceeds 0.15%. Actual Total Annual Series
Operating Expenses after expense reimbursement were 1.05% for the year
ending December 31, 1998.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- ----------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------
Phoenix-Engemann
Nifty Fifty Series $261 $802 $1,370 $2,915
- ----------------------------------------------------------------
12 Phoenix-Engemann Nifty Fifty Series
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
--------
<S> <C>
Net asset value, beginning of period............................................. $ 10.00
Income from investment operations
Net investment income.......................................................... 0.01(3,4)
Net realized and unrealized gain (loss)........................................ 2.62
----
Total from investment operations............................................. 2.63
----
Less distributions:
Dividends from net investment income........................................... (0.01)
In excess of net investment income............................................. --
------
Total distributions.......................................................... (0.01)
------
Change in net asset value........................................................ 2.62
----
Net asset value, end of period................................................... $ 12.62
=========
Total Return..................................................................... 26.26%(2)
Ratios/supplemental data:
Net assets, end of period (thousands).......................................... $ 13,153
Ratio to average net assets of:
Operating expenses............................................................. 1.05%(1)
Net investment income.......................................................... 0.07%(1)
Portfolio turnover rate.......................................................... 90%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.13
per share. 4 Computed using average shares outstanding.
Phoenix-Engemann Nifty Fifty Series 13
<PAGE>
PHOENIX-GOODWIN BALANCED SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVES
The Phoenix-Goodwin Balanced Series has investment objectives of reasonable
income, long-term capital growth and conservation of capital. There is no
guarantee that the Series will achieve its objectives.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The adviser will use four criteria to select investments for the
Series: risk, income, capital enhancement and protection of capital
value. The adviser will select securities believed to have potential
for the production of current income, with emphasis on securities that
also have the potential for capital enhancement. Fixed income
securities are selected using a multi-sector approach. The adviser may
adjust the mix of investments based upon financial market and economic
conditions.
[diamond] Under normal circumstances, the Series will invest at least 65% of its
total assets in common stocks of companies of any size and fixed
income securities.
[diamond] The Series may invest up to 35% of its net assets in high yield, high
risk fixed income securities (commonly referred to as "junk bonds").
[diamond] At least 25% of the Series' assets will be invested in fixed income
securities that are rated within the four highest rating categories.
[diamond] The Series may invest 25% of its total assets in foreign securities,
including emerging market securities and foreign government
securities.
[diamond] The Series may also invest in mortgage-backed and asset-backed
securities.
PRINCIPAL RISKS
If you invest in this Series, you risk losing your investment.
The Series will seek to increase the value of your shares by investing in
securities the adviser expects to increase in value or provide reasonable
income. Most of the Series' investments will be in common stocks and fixed
income securities. Conditions affecting the overall economy, specific industries
or companies in which the Series invests and interest rate changes can be worse
than expected. As a result, the value of your shares may decrease. If the
adviser misjudges the return potential of fixed income securities, or the
ability of issuers to make scheduled principal and interest payments, the
Series' returns may be lower than prevailing returns, and the Series' income
available for distribution may be less than other Series. Neither the Series nor
the adviser can assure you that a particular level of income will be
consistently achieved.
This Series may invest in high risk, high yield fixed income securities (so
called "junk bonds"). Junk bonds present a greater risk that the issuer will not
be able to make interest or principal payments on time. If this happens, the
Series would lose income and could expect a decline in the market value of the
securities.
The Series may invest in foreign government securities and companies in
foreign countries, including some "emerging market" countries (countries with
markets that are not fully developed). Political and economic uncertainty as
well as less public information about investments may negatively impact the
Series' portfolio. Some investments may be made in currencies other than U.S.
dollars that will fluctuate in value as a result of changes in the currency
exchange rate. Foreign markets and currencies may not perform as well as U.S.
markets. Emerging market countries and companies doing business in emerging
markets may not have the same range of opportunities as countries and their
companies in developed nations. They also may have more obstacles to financial
success.
This Series may invest in unrated securities. Unrated securities may not
have as broad a market as rated, investment grade securities making them more
difficult to sell. This could cause the security to lose value.
The Series may invest in small companies as well as large companies. Smaller
companies may be affected to a greater extent than larger companies by changes
in general economic conditions and conditions in particular industries. Smaller
companies also may be relatively new and not have the same operating history and
"track record" as larger companies. This could make future performance of
smaller companies more difficult to predict.
This Series may invest in mortgage-backed and other asset-backed securities.
A portion of the cash flow from these securities may be from early payoff of
some of the underlying loans. In the event of very high prepayments, the Series
may be required to invest the proceeds at a lower interest rate, causing the
Series to earn less than if the prepayments had not occurred.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Goodwin Balanced Series. The bar chart shows changes in
the Series' annual performance from year to year over a 6-year period.(1) The
table below shows how the Series' average annual returns for one and five years
and for the life of the Series compare to those of a broad-based securities
market index. The Series' past performance is not necessarily an indication of
how the Series will perform in the future.
14 Phoenix-Goodwin Balanced Series
<PAGE>
PHOENIX-GOODWIN BALANCED SERIES
[graphic emitted]
CALENDAR YEAR ANNUAL RETURN (%)
1993 8.57
1994 -2.80
1995 23.28
1996 10.56
1997 17.93
1998 19.01
(1) The Series' average annual returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if such charges were deducted. During the
10-year period shown in the chart above, the highest return for a quarter
was 13.56% (quarter ending December 1998) and the lowest return for a
quarter was -5.21% (quarter ending September 1998).
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL
RETURNS
(FOR THE PERIOD ENDING ONE FIVE LIFE OF
12/31/98) YEAR YEARS THE SERIES(1)
- ---------------------------------------------------------------
Phoenix-Goodwin
Balanced Series 19.01% 13.21% 12.66%
- ---------------------------------------------------------------
Balanced Benchmark(2) 19.67% 16.29% 14.65%
- ---------------------------------------------------------------
(1) Since May 1, 1992.
(2) The Balanced Benchmark is a composite index made up of 55% of the S&P 500
Index return, 35% of the Lehman Brothers Aggregate Bond Index return and 10%
of the 90-day U.S. Treasury bills return and is produced by Frank Russell
Company. The Index is not available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM THE SERIES' ASSETS)
Management Fees .55%
Distribution and Service (12b-1) Fees None
Other Expenses .13%
------------
TOTAL ANNUAL SERIES' OPERATING EXPENSES .68%
====
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- ---------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Phoenix-Goodwin
Balanced Series $69 $218 $379 $847
- ---------------------------------------------------------------
Phoenix-Goodwin Balanced Series 15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 12.26 $ 12.06 $ 12.30 $ 10.53 $ 11.31
Income from investment operations
Net investment income..................................... 0.33 0.38 0.36 0.40(2) 0.38(1,2)
Net realized and unrealized gain (loss)................... 1.94 1.73 0.89 2.02 (0.70)
---- ---- ---- ---- ------
Total from investment operations........................ 2.27 2.11 1.25 2.42 (0.32)
---- ---- ---- ---- ------
Less distributions:
Dividends from net investment income...................... (0.32) (0.40) (0.35) (0.40) (0.36)
Dividends from net realized gains......................... (0.47) (1.51) (1.14) (0.25) (0.10)
------ ------ ------ ------ ------
Total distributions..................................... (0.79) (1.91) (1.49) (0.65) (0.46)
------ ------ ------ ------ ------
Change in net asset value................................... 1.48 0.20 (0.24) 1.77 (0.78)
---- ---- ------ ---- ------
Net asset value, end of period.............................. $ 13.74 $ 12.26 $ 12.06 $ 12.30 $ 10.53
========== ========== ========== ========== ==========
Total Return ............................................... 19.01% 17.93% 10.56% 23.28% (2.80%)
Ratios/supplemental data:
Net assets, end of period (thousands)..................... $ 280,056 $ 231,180 $ 204,285 $ 193,302 $ 161,105
Ratio to average net assets of:
Operating expenses........................................ 0.68% 0.71% 0.68% 0.65%(3) 0.69%
Net investment income..................................... 2.58% 2.92% 2.93% 3.44% 3.44%
Portfolio turnover rate..................................... 110% 181% 229% 223% 171%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
per share.
(2) Computed using average shares outstanding.
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
16 Phoenix-Goodwin Balanced Series
<PAGE>
PHOENIX-GOODWIN GROWTH SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVES
The Phoenix-Goodwin Growth Series has an investment objective of
intermediate and long-term capital appreciation, with income as a secondary
consideration. There is no guarantee that the Series will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] Under normal circumstances, the Series will invest at least 65% of its
total assets in common stocks.
[diamond] The adviser first determines which industries it believes have the
greatest growth potential and then identifies the amount and
proportion of assets to be invested in each. Quantitative and
fundamental analysis is then used to determine which securities to buy
and sell. Approximately 950 large cap stocks go through a quantitative
screening process where they are ranked on a number of factors,
including earnings acceleration, earning revisions, relative strength
and valuation. From these, the top 10% are analyzed for potential
Series investment. Companies that the adviser believes are capable of
producing long-term, sustainable above-average earnings growth
relative to their cost are then selected for Series investment.
Securities that have dropped 15% or more in value relative to the S&P
500 Index, that are in the bottom 20% of their quantitative ranking or
that have reached the adviser's target sell price are analyzed for
potential sale out of the Series' portfolio.
[diamond] The Series may invest any amount of its assets in any class or type of
security believed by the adviser to offer the potential for capital
appreciation over the intermediate and long term, including preferred
stocks, investment grade bonds, convertible preferred stocks and
convertible debentures. Distribution of investment income, such as
dividends and interest, is incidental in the selection of investments.
[diamond] Diversification among market sectors will be a factor in selecting
securities for the Series. However, the adviser will put greater emphasis on
selecting securities it believes have good potential for appreciation rather
than upon wide diversification.
[diamond] The Series may invest 25% of its total assets in foreign securities,
including emerging market securities.
[diamond] The Series may invest in small companies as well as large companies.
PRINCIPAL RISKS
If you invest in this Series, you risk that you may lose your investment.
The Series will seek to increase the value of your shares by investing in
securities the adviser expects to increase in value. Most of the Series'
investments will be in common stocks. Conditions affecting the overall economy,
specific industries or companies in which the Series invests can be worse than
expected. As a result, the value of your shares may decrease.
The value of bonds and other fixed income securities in which the Series may
invest is inversely related to interest rate changes. If interest rates rise,
generally the value of these securities will fall. This may also cause the value
of your shares to decrease.
The Series may invest in small companies as well as large companies. Smaller
companies may be affected to a greater extent than larger companies by changes
in general economic conditions and conditions in particular industries. Smaller
companies also may be relatively new and not have the same operating history and
"track record" as larger companies. This could make future performance of
smaller companies more difficult to predict.
The Series may invest in companies in foreign countries, including some
"emerging market" countries (countries with markets that are not fully
developed). Political and economic uncertainty as well as less public
information about investments may negatively impact the Series' portfolio. No
investments may be made in currencies other than U.S. dollars. Foreign markets
may not perform as well as U.S. markets. Emerging market countries and companies
doing business in emerging markets may not have the same range of opportunities
as countries and their companies in developed nations. They also may have more
obstacles to financial success.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Goodwin Growth Series. The bar chart shows changes in
the Series' total return performance from year to year over a 10-year period.(1)
The table below shows how the Series' average annual returns for one, five and
ten years and for the life of the Series compare to those of a broad-based
securities market index. The Series' past performance is not necessarily an
indication of how the Series will perform in the future.
Phoenix-Goodwin Growth Series 17
<PAGE>
PHOENIX-GOODWIN GROWTH SERIES
[graphic omitted]
CALENDAR YEAR ANNUAL RETURN (%)
1989 36.06
1990 3.98
1991 43.83
1992 10.29
1993 19.69
1994 1.48
1995 30.85
1996 12.58
1997 21.07
1998 30.01
(1) The Series' average annual returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if sales charges were deducted. During the
10-year period shown in the chart above, the highest return for a quarter
was 23.36% (quarter ending March 1991) and the lowest return for a quarter
was -11.36% (quarter ending September 1990).
- ------------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS LIFE OF
(FOR THE PERIOD ONE FIVE TEN THE
ENDING 12/31/98) YEAR YEARS YEARS SERIES(1)
- ------------------------------------------------------------------
Phoenix-Goodwin
Growth Series 30.01% 18.67% 20.25% 19.27%
- ------------------------------------------------------------------
S&P 500 Stock Index(2) 28.76% 24.15% 19.22% 18.12%
- ------------------------------------------------------------------
(1) Since January 1, 1983.
(2) The S&P 500 Index is an unmanaged, commonly used measure of total return
stock market performance. The index is not available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM THE SERIES' ASSETS)
Management Fees .62%
Distribution and Service (12b-1) Fees None
Other Expenses(1) .07%
------------
TOTAL ANNUAL SERIES' OPERATING EXPENSES .69%
(1) The Phoenix-Goodwin Growth Series investment adviser has agreed to reimburse
through the Phoenix-Goodwin Growth Series' expenses other than Management
Fees to the extent such expenses exceed .15% of its total average net
assets.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions, your costs would be:
- ---------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Phoenix-Goodwin
Growth Series $70 $221 $384 $859
- ---------------------------------------------------------------
18 Phoenix-Goodwin Growth Series
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 19.16 $ 18.89 $ 18.13 $ 15.69 $ 16.59
Income from investment operations
Net investment income................................. 0.03 0.13 0.19 0.20 0.23(1,3)
Net realized and unrealized gain...................... 5.65 3.70 2.10 4.60 0.02
---- ---- ---- ---- ----
Total from investment operations.................... 5.68 3.83 2.29 4.80 0.25
---- ---- ---- ---- ----
Less distributions:
Dividends from net investment income.................. (0.03) (0.13) (0.18) (0.17) (0.23)
Dividends from net realized gains..................... (0.88) (3.43) (1.35) (2.19) (0.92)
------ ------ ------ ------ ------
Total distributions.................................. (0.91) (3.56) (1.53) (2.36) (1.15)
------ ------ ------ ------ ------
Change in net asset value............................... 4.77 0.27 0.76 2.44 (0.90)
---- ---- ---- ---- ------
Net asset value, end of period.......................... $ 23.93 $ 19.16 $ 18.89 $ 18.13 $ 15.69
======== ======== ======== ======== ========
Total Return............................................ 30.01% 21.07% 12.58% 30.85% 1.48%
Ratios/supplemental data:
Net assets, end of period (thousands)................. $1,876,296 $1,505,568 $1,235,395 $985,389 $616,221
Ratio to average net assets of:
Operating expenses.................................... 0.69% 0.74% 0.72% 0.75%(2) 0.80%
Net investment income................................. 0.15% 0.64% 1.03% 1.12% 1.38%
Portfolio turnover rate................................. 102% 284% 167% 173% 185%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.003
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(3) Computed using average shares outstanding.
Phoenix-Goodwin Growth Series 19
<PAGE>
PHOENIX-GOODWIN MONEY MARKET SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVES
The Phoenix-Goodwin Money Market Series has an investment objective of
seeking as high a level of current income as is consistent with the preservation
of capital and maintenance of liquidity. There is no guarantee that the Series
will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The Series seeks to maintain a stable $1.00 per share price.
[diamond] The Series will invest in a diversified portfolio of high quality
money market instruments with maturities of 397 days or less. The
average maturity of the Series' portfolio securities, based on their
dollar value, will not exceed 90 days.
[diamond] The Series will invest exclusively in the following instruments:
[bullet] Obligations issued or guaranteed by the U.S. government, its
agencies, authorities and instrumentalities
[bullet] Obligations issued by banks and savings and loan
associations, including dollar-denominated obligations of
foreign branches of U.S. banks and U.S. branches of foreign
banks
[bullet] Dollar-denominated obligations guaranteed by banks or savings
and loan associations
[bullet] Federally insured obligations of other banks or savings and
loan associations
[bullet] Commercial paper
[bullet] Short-term corporate obligations
[bullet] Repurchase agreements
[diamond] At least 95% of the Series' total assets will be invested in
securities in the highest short-term rating category. Generally,
investments will be limited to securities in the two highest
short-term rating categories.
[diamond] The Series may invest more than 25% of its assets in the domestic
banking industry.
[diamond] The Series may forego purchasing securities with the highest available
yield due to considerations of liquidity and safety of principal.
[diamond] The adviser will buy, sell and trade securities in anticipation of, or
in response to, changing economic and money market conditions and
trends. This, and the short-term nature of money market instruments,
may result in a high portfolio turnover rate.
PRINCIPAL RISKS
An investment in the Series is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
Series seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Series.
The Series' focus is to optimize current income. The adviser intends to
select investments that provide higher returns relative to overall money market
investment returns while preserving capital and maintaining liquidity. If the
adviser misjudges the return potential or the ability of the issuer to make
scheduled income and principal payments, the Series' returns may be lower than
prevailing returns and the Series' income available for distribution may be
less. Neither the Series nor the adviser can assure you that a particular level
of income will be consistently achieved.
The adviser intends to select investments that optimize the Series' yield
while preserving capital and maintaining liquidity. Because market conditions
and interest rates determine portfolio security yields, neither the Series nor
the adviser can assure you that the Series' yield will remain constant or that a
particular level of income will be achieved.
A security's short-term investment rating may decline, increasing the
chances the issuer may not be able to make principal and interest payments on
time. This may reduce the Series' stream of income and decrease the Series'
yield.
Obligations issued or guaranteed by the U.S. government, its agencies,
authorities and instrumentalities, or guaranteed or insured by banks only
guarantee or insure principal and interest will be timely paid to holders of the
securities. The entities do not guarantee that the value of the Series' shares
will increase.
The Series may invest in repurchase agreements. If the seller of the
repurchase agreement does not repurchase the underlying securities, the Series
may incur a loss.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Goodwin Money Market Series. The bar chart shows
changes in the Series' performance from year to year over a 10-year period.(1)
20 Phoenix-Goodwin Money Market Series
<PAGE>
PHOENIX-GOODWIN MONEY MARKET SERIES
{graphic omitted]
CALENDAR YEAR ANNUAL RETURN (%)
1989 9.20
1990 8.22
1991 5.98
1992 3.58
1993 2.87
1994 3.83
1995 5.72
1996 5.09
1997 5.18
1998 5.09
(1) The Series' average annual returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if such charges were deducted. During the
10-year period shown in the chart above, the highest return for a quarter
was 2.37% (quarter ending June 1989) and the lowest return for a quarter was
.69% (quarter ending September 1993).
The Series' 7-day yield on December 31, 1998 was 4.05%.
- ---------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS LIFE OF
(FOR THE PERIOD ONE FIVE TEN THE
ENDING 12/31/98) YEAR YEARS YEARS SERIES(1)
- ---------------------------------------------------------------
Phoenix-Goodwin
Money Market 5.09% 4.98% 5.46% 6.34%
Series
- ---------------------------------------------------------------
Lipper Money
Market Fund(2) 5.10% 4.90% 5.32% 6.27%
- ---------------------------------------------------------------
(1) Since October 31, 1982.
(2) The Lipper Money Market Fund is comprised of the weighted average of the top
30 funds in the Money Market universe.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM THE SERIES' ASSETS)
Management Fees .40%
Distribution and Service (12b-1) Fees None
Other Expenses .15%
------------
TOTAL ANNUAL SERIES' OPERATING EXPENSES .55%
====
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
- --------------------------------------------------------------
Phoenix-Goodwin Money
Market Series $56 $176 $307 $689
- --------------------------------------------------------------
Phoenix-Goodwin Money Market Series 21
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........................ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations
Net investment income..................................... 0.50 0.50 0.50 0.56 0.38(1)
---- ---- ---- ---- ----
Total from investment operations......................... 0.50 0.50 0.50 0.56 0.38
---- ---- ---- ---- ----
Less distributions:
Dividends from net investment income...................... (0.50) (0.50) (0.50) (0.56) (0.38)
------ ------ ------ ------ ------
Total distributions...................................... (0.50) (0.50) (0.50) (0.56) (0.38)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
========= ========= ========= ========= =========
Total Return................................................ 5.09% 4.99% 4.98% 5.55% 3.77%
Ratios/supplemental data:
Net assets, end of period (thousands)..................... $ 196,811 $ 126,607 $ 131,361 $ 102,943 $ 94,586
Ratio to average net assets of:
Operating expenses........................................ 0.55% 0.55% 0.55% 0.53%(2) 0.55%
Net investment income..................................... 4.99% 5.07% 4.89% 5.57% 3.85%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.003
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
22 Phoenix-Goodwin Money Market Series
<PAGE>
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVES
The Phoenix-Goodwin Multi-Sector Fixed Income Series has an investment
objective of seeking long-term total return by investing in a diversified
portfolio mixture of high yield (high risk) and high quality fixed income
securities. There is no guarantee that the Series will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] Under normal circumstances, the Series will invest at least 65% of its
total assets in various sectors of the fixed income securities market.
[diamond] Fixed income securities include: high yield (high risk) fixed income
securities (sometimes referred to as "junk bonds"), high quality fixed
income securities, preferred stock, convertible securities, debt
obligations, foreign debt obligations, certificates of deposit,
commercial paper, bankers' acceptances, and government obligations
issued or guaranteed by federal, state or municipal governments or
their agencies or instrumentalities.
[diamond] The advisor seeks to match the average duration and maturity of the
Series portfolio to those of the Lehman Brothers Aggregated Bond
Index.
[diamond] The Series may invest up to 35% of its total assets in high yield
(high risk) corporate fixed income securities.
[diamond] The Series may invest up to 50% of its total assets in foreign debt
obligations.
[diamond] The Series may invest in common stock and other equity securities.
PRINCIPAL RISKS
If you invest in this Series you may lose your investment.
The Series seeks to select investments providing an opportunity to enhance
the portfolio's overall total return and yield. Although the Series usually will
be invested in all sectors of the fixed income securities market, it may invest
any amount of its assets in any one sector (except for high yield (high risk)
and foreign debt obligations) and may choose not to invest in a sector in order
to achieve its investment objective. Conditions affecting the overall economy,
specific industries or companies in which the Series invests and interest rate
changes can be worse than expected. As a result, the value of your shares may
decline. If the adviser misjudges the return potential of fixed income
securities, or the ability of issuers to make scheduled principal and interest
payments, the Series' return may be lower than prevailing returns.
The Series may invest in high yield (high risk) fixed income securities (so
called "junk bonds"). Junk bonds present a greater risk that the issuer will not
be able to make interest or principal payments on time. If this happens, the
Series would lose income and could expect a decline in the market value of the
securities.
The Series may invest fixed income securities of foreign governments and
companies in foreign countries, including some "emerging market" countries
(countries with markets that are not fully developed). Political and economic
uncertainty as well as less public information about investments may negatively
impact the Series' portfolio. Some investments may be made in currencies other
than U.S. dollars that will fluctuate in value as a result of changes in the
currency exchange rate. Foreign markets and currencies may not perform as well
as U.S. markets. Emerging market countries and companies doing business in
emerging markets may not have the same range of opportunities as countries and
their companies in developed nations. They also may have more obstacles to
financial success.
This Series may invest in mortgage-backed and other asset-backed securities.
A portion of the cash flow from these securities may be from early payoff of
some of the underlying loans. In the event of very high prepayments, the Series
may be required to invest the proceeds at a lower interest rate, causing the
Series to earn less than if the prepayments had not occurred.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Goodwin Multi-Sector Fixed Income Series. The bar chart
shows the changes in the Series' performance from year to year over a 10-year
period.(1) The table below shows how the Series' average annual returns for one,
five and ten years and the life of the Series compare to those of a broad-based
market index. The Series' past performance is not necessarily an indication of
how the Series will perform in the future.
PHOENIX-GOODWIN MULTI-SECTOR SERIES
[graphic omitted]
CALENDAR YEAR ANNUAL RETURN (%)
1989 8.30
1990 5.14
1991 19.41
1992 10.03
1993 15.90
1994 -5.47
1995 23.54
1996 12.42
1997 10.93
1998 -4.02
(1) The Series' annual returns in the chart above do not reflect the deduction
of any separate account or contract charges. The returns would have been
less than those shown if such charges were deducted. During the 10-year
period shown in the chart above, the highest return for a quarter was 8.89%
(quarter ending June 1995) and the lowest return for a quarter was -8.25%
(quarter ending September 1998).
Phoenix-Goodwin Multi-Sector Fixed Income Series 23
<PAGE>
- ---------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS LIFE OF
(FOR THE PERIOD ONE FIVE TEN THE
ENDING 12/31/98) YEAR YEARS YEARS SERIES(1)
- ---------------------------------------------------------------
Phoenix-Goodwin
Multi-Sector Fixed (4.02)% 6.93% 9.26% 9.99%
Income Series
- ---------------------------------------------------------------
Lehman Brothers
Aggregate Bond 8.69% 7.27% 9.26% 9.98%
Index(2)
- ---------------------------------------------------------------
(1) Since January 1, 1983.
(2) The Lehman Brothers Aggregate Bond Index is an unmanaged, commonly used
measure of bond performance. The index is not available for direct
investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM THE SERIES' ASSETS)
Management Fees .50%
Distribution and Service (12b-1) Fees None
Other Operating Expenses(1) .14%
------------
TOTAL ANNUAL SERIES' OPERATING EXPENSES .64%
====
(1) Phoenix Investment Counsel, Inc. (PIC) has agreed to reimburse the Series
for the amount, if any, the Series' operating expenses, other than the
management fee for any fiscal year exceeds .15% of the average net assets of
the Series.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- -----------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------
Phoenix-Goodwin
Multi-Sector Fixed $65 $205 $357 $798
Income Series
- -----------------------------------------------------------
24 Phoenix-Goodwin Multi-Sector Fixed Income Series
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $ 10.38 $ 10.34 $ 10.22 $ 8.98 $ 10.27
Income from investment operations
Net investment income.............................. 0.77 0.75(1) 0.79(1) 0.83(1,2) 0.72(1,2)
Net realized and unrealized gain (loss)............ (1.17) 0.34 0.43 1.22 (1.28)
------ ---- ---- ---- ------
Total from investment operations................. (0.40) 1.09 1.22 2.05 (0.56)
------ ---- ---- ---- ------
Less distributions
Dividends from net investment income............... (0.74) (0.77) (0.78) (0.81) (0.73)
Dividends from net realized gains.................. (0.06) (0.28) (0.32) -- --
------ ------ ------ ------ ------
Total distributions............................... (0.80) (1.05) (1.10) (0.81) (0.73)
------ ------ ------ ------ ------
Change in net asset value............................ (1.20) 0.04 0.12 1.24 (1.29)
------ ---- ---- ---- ------
Net asset value, end of period....................... $ 9.18 $ 10.38 $ 10.34 $ 10.22 $ 8.98
======= ======== ======== ======== =======
Total Return......................................... (4.02)% 10.93% 12.42% 23.54% (5.47)%
Ratios/supplemental data:
Net assets, end of period (thousands).............. $187,363 $191,627 $145,044 $109,046 $ 74,686
Ratio to average net assets of:
Operating expenses................................. 0.64% 0.65% 0.65% 0.65%(3) 0.66%
Net investment income.............................. 7.61% 7.25% 7.80% 8.55% 7.62%
Portfolio turnover rate.............................. 160% 151% 191% 147% 181%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.001, $0.002, $0.007 and $0.006 per share, respectively.
(2) Computed using average shares outstanding.
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
Phoenix-Goodwin Multi-Sector Fixed Income Series 25
<PAGE>
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVE
The Phoenix-Goodwin Strategic Allocation Series has an investment objective
of high total return over an extended period of time consistent with prudent
investment risk. There is no guarantee that the Series will achieve its
investment objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The adviser will determine the allocation of investments among the
three market segments:
[bullet] stocks
[bullet] bonds
[bullet] money market
[diamond] The advisor will shift investment allocation among the three market
segments.
[diamond] The advisor will use active trading as a means of managing the
portfolio.
[diamond] Investment in the stock market segment will be made with the intent to
achieve superior total rate of return over an extended period of time
from both capital appreciation and current income.
[diamond] Investment in the bond segment will be made with the intent to achieve
as high a total rate of return as an annual basis as is considered
consistent with preservation of capital.
[diamond] Investment in the money market segment will be made with the intent to
achieve high current income, preservation of capital and liquidity.
[diamond] The Series may invest up to 5% of its total assets in "junk bonds."
PRINCIPAL RISKS
If you invest in this Series you may lose your investment.
The Series will seek to increase the value of your shares by investing in
securities the adviser expects to increase in value and/or to provide current
income. Most of the Series investments will be in common stocks or debt
instruments. Conditions affecting the overall economy, specific industries or
companies in which the Series invests can be worse than expected. As a result,
the value of your shares may decrease. Dividend, interest and other
distributions also can decrease or be eliminated entirely.
The Series also may invest in small companies as well as larger companies.
Smaller companies, regardless of their location, may be affected to a greater
extent than larger companies by changes in general economic conditions and
conditions in particular industries. Smaller companies also may be relatively
new and not have the same operating history and "track record" as larger
companies. This could make future performance of smaller companies more
difficult to predict.
The Series may invest in companies in foreign countries. Political and
economic uncertainty as well as relatively less public information about
investments may negatively impact the Series' portfolio. Foreign markets and
currencies may not perform as well as U.S. markets.
Implementation of the strategy requires that the adviser accurately
anticipate the market segment(s) to emphasize or avoid.
The Share may invest in financial futures contracts and options. The adviser
will make these investments primarily to try to minimize the risk of other
investments it makes for the Series. These investments may not protect the
Series from losses, they may decrease overall return, and they could, in unusual
circumstances, expose the Series to losses that could be unlimited.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Goodwin Strategic Allocation Series. The bar chart
shows changes in the Series' performance from year to year over a 10-year
period.(1) The table below shows how the Series' average annual return for one,
five and ten years and the life of the Series compare to those of a broad-based
securities market index. The Series' past performance is not necessarily an
indication of how the Series will perform in the future.
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES
[graphic emitted]
CALENDAR YEAR ANNUAL REPORT(%)
1989 19.88
1990 5.62
1991 29.44
1992 10.67
1993 11.02
1994 -1.45
1995 18.22
1996 9.05
1997 20.73
1998 20.79
(1) The Series' average total returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if such charges were deducted. During the
10-year period shown in the chart above, the highest return for a quarter
was 16.00% (quarter ending December 1998) and the lowest return for a
quarter was -5.52% (quarter ending September 1998).
26 Phoenix-Goodwin Strategic Allocation Series
<PAGE>
- --------------------------------------------------------------
AVERAGE ANNUAL
TOTAL RETURNS LIFE OF
(FOR THE PERIOD ONE FIVE TEN THE
ENDING 12/31/98) YEAR YEARS YEARS SERIES(1)
- --------------------------------------------------------------
Phoenix-Goodwin
Strategic Allocation 20.79% 13.13% 14.06% 13.68%
Series
- --------------------------------------------------------------
Balanced Benchmark(2) 19.67% 16.29% 14.46% 14.60%
- --------------------------------------------------------------
Lipper Analytical
Services Flexible 16.55% 13.69% 13.02% N/A
Portfolio Index(3)
- --------------------------------------------------------------
S&P 500 Index(4) 28.76% 24.15% 19.22% 18.35%
- --------------------------------------------------------------
(1) Since September 17, 1984.
(2) The Balanced Benchmark is calculated based upon the performance of the
following indices: 55% S&P 500/35% Lehman Brothers Aggregate Bond Index/10%
90-day Treasury Bills and is produced by Frank Russell Company.
(3) The Lipper Analytical Services Portfolio Index is an average of the largest
mutual funds within the flexible portfolio category.
(4) The S&P 500 Stock Index is an unmanaged, but commonly used measure of stock
total return performance. The index is not available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees .58%
Distribution and Service (12b-1) Fees None
Other Expenses .10%
----------
TOTAL ANNUAL SERIES' OPERATING EXPENSES .68%
====
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- -------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------
Phoenix-Goodwin
Strategic $69 $218 $379 $847
Allocation Series
- -------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation Series 27
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 14.12 $ 13.65 $ 13.63 $ 12.68 $ 13.71
Income from investment operations
Net investment income (loss)..................... 0.29 0.32 0.32 0.45 0.36(1,3)
Net realized and unrealized gain (loss).......... 2.57 2.46 0.91 1.84 (0.56)
---- ---- ---- ---- ------
Total from investment operations............... 2.86 2.78 1.23 2.29 (0.20)
---- ---- ---- ---- ------
Less distributions:
Dividends from net investment income............. (0.28) (0.33) (0.31) (0.45) (0.37)
Dividends from net realized gains................ (1.05) (1.98) (0.90) (0.89) (0.46)
------ ------ ------ ------ ------
Total distributions............................. (1.33) (2.31) (1.21) (1.34) (0.83)
------ ------ ------ ------ ------
Change in net asset value.......................... 1.53 0.47 0.02 0.95 (1.03)
---- ---- ---- ---- ------
Net asset value, end of period..................... $ 15.65 $ 14.12 $ 13.65 $ 13.63 $ 12.68
======== ======== ======== ======== ========
Total Return....................................... 20.79% 20.73% 9.05% 18.22% (1.45%)
Ratios/supplemental data:
Net assets, end of period (thousands)............ $480,897 $429,002 $374,244 $353,838 $289,083
Ratio to average net assets of:
Operating expenses............................... 0.68% 0.71% 0.70% 0.67%(2) 0.74%
Net investment income............................ 1.97% 2.09% 2.26% 3.28% 2.71%
Portfolio turnover rate............................ 139% 368% 287% 170% 220%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(3) Computed using average shares outstanding.
28 Phoenix-Goodwin Strategic Allocation Series
<PAGE>
PHOENIX-GOODWIN STRATEGIC THEME SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVE
The Phoenix-Goodwin Strategic Theme Series has an investment objective of
long-term capital appreciation through investing in securities of companies
benefiting from long-term trends present in the United States and abroad. There
is no guarantee that the Series will achieve its investment objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The Series will invest primarily in common stocks of companies
believed by the adviser to have substantial potential for capital
growth by being well positioned to benefit from:
[bullet] cultural;
[bullet] demographic;
[bullet] regulatory;
[bullet] social; or
[bullet] technological changes worldwide.
[diamond] The adviser will seek to identify those companies which, in addition
to being well positioned to benefit from identified themes, also:
[bullet] have good financial resources;
[bullet] provide satisfactory return on capital;
[bullet] has enhanced industry position; and
[bullet] has demonstrated superior management skills.
[diamond] Adviser will establish strategic themes (major changes affecting
markets for a prolonged periods of time) and tactical themes (focused,
short-term).
[diamond] The Series may invest in preferred stocks, investment grade bonds,
convertible preferred stocks and convertible debentures.
[diamond] The Series may invest up to 35% of its total assets in securities of
foreign issuers.
PRINCIPAL RISKS
If you invest in this Series you risk that you may lose your investment.
The Series will seek to increase the value of your shares by investing in
securities the adviser expects to increase in value. Most of the Series'
investments will be in common stocks and other equity securities. Conditions
affecting the overall economy, specific industries or companies in which the
Series invests can be worse than expected. As a result, the value of your shares
may decrease.
The Series may invest in securities issued by small companies. Smaller
companies, regardless of their location, may be affected to a greater extent
than larger companies by changes in general economic conditions and conditions
in particular industries. Smaller companies also may be relatively new and not
have the same operating history and "track record" as larger companies. This
could make future performance of smaller companies more difficult to predict.
The Series may invest in companies in foreign countries. Political and
economic uncertainty as well as relatively less public information about
investments may negatively impact the Series' portfolio. Some investments may be
made in currencies other than U.S. dollars that will fluctuate in value as a
result of changes in the currency exchange rate. Foreign markets and currencies
may not perform as well as U.S. markets.
Investing in a single economic theme can make the Series more vulnerable to
adverse economic, political or regulatory developments than a diversified
portfolio.
The adviser may not accurately anticipate emerging market trends, or may not
exploit such investment opportunities, or may not divest such investments at the
proper time.
PERFORMANCE TABLES
The bar chart and table below provide some indication of the risks of
investing in the Phoenix-Goodwin Strategic Theme Series. The bar chart shows
changes in the Series' performance from year to year over its life.(1) The table
below shows how the Series' average annual returns for one year and for the life
of the Series compare to those of a broad-based securities market index. The
Series' past performance is not necessarily an indication of how the Series will
perform in the future.
PHOENIX-GOODWIN STRATEGIC THEME SERIES
[graphic omitted]
CALENDAR YEAR ANNUAL RETURN (%)
1997 17.16
1998 44.69
(1) The Series' average annual returns in the chart above do not reflect the
deduction of any separate account or contract charges. The returns would
have been less than those shown if such charges were deducted. During the
period shown in the chart above, the highest return for a quarter was 37.46%
(quarter ending December 1998) and the lowest return for a quarter was
-7.15% (quarter ending September 1998).
Phoenix-Goodwin Strategic Theme Series 29
<PAGE>
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING LIFE OF
12/31/98) ONE YEAR THE SERIES(1)
- ---------------------------------------------------------------
Phoenix-Goodwin
Strategic Theme Series 44.69% 23.89%
- ---------------------------------------------------------------
S&P MidCap 400 Index(2) 19.11% 24.20%
- ---------------------------------------------------------------
S&P 500 Stock Index(3) 28.76% 28.59%
- ---------------------------------------------------------------
(1) Since January 29, 1996.
(2) The S&P MidCap 400 is an unmanaged index composed of companies with market
capitalizations between $300 million and $5 billion. 3 The S&P 500 Index is
an unmanaged, commonly used measure of stock total return performance. The
Index is not available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees .75%
Distribution and Service (12b-1) Fees None
Other Expenses .24%
-----------
TOTAL ANNUAL SERIES' OPERATING EXPENSES .99%
====
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- ---------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Phoenix-Goodwin
Strategic Theme Series $101 $315 $547 $1,213
- ---------------------------------------------------------------
30 Phoenix-Goodwin Strategic Theme Series
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 1/29/96 TO
1998 1997 12/31/96
---- ---- ----------
<S> <C> <C> <C>
Net asset value, beginning of period............................................ $ 11.32 $ 10.98 $ 10.00
Income from investment operations
Net investment income (loss).................................................. 0.01 0.05(3) 0.04(3)
Net realized and unrealized gain (loss)....................................... 5.03 1.82 0.99
---- ---- ----
Total from investment operations............................................ 5.04 1.87 1.03
---- ---- ----
Less distributions
Dividends from net investment income.......................................... (0.01) (0.05) (0.04)
Dividends from net realized gains............................................. (0.95) (1.16) --
In excess of net realized gains............................................... -- (0.31) --
Tax return of capital......................................................... -- (0.01) (0.01)
------ ------ ------
Total distributions......................................................... (0.96) (1.53) (0.05)
------ ------ ------
Change in net asset value....................................................... 4.08 0.34 0.98
---- ---- ----
Net asset value, end of period.................................................. $ 15.40 $ 11.32 $ 10.98
========= ========= =========
Total Return.................................................................... 44.69% 17.16% 10.33%(2)
Ratios/supplemental data:
Net assets, end of period (thousands)......................................... $ 75,098 $ 47,620 $ 25,972
Ratio to average net assets of:
Operating expenses............................................................ 0.99% 1.00% 1.00%(1)
Net investment income......................................................... (0.01)% 0.42% 0.64%(1)
Portfolio turnover rate......................................................... 364% 642% 391%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.02
and $0.02 per share, respectively.
Phoenix-Goodwin Strategic Theme Series 31
<PAGE>
PHOENIX-HOLLISTER VALUE EQUITY SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVES
The Phoenix-Hollister Value Equity Series' primary investment objective is
to seek long-term capital appreciation. The Series has a secondary investment
objective to seek current income. There is no guarantee that the Series will
achieve either objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The Series will invest primarily in common stocks. Under normal
circumstances the Series will invest at least 65% of its total assets
in common stocks.
[diamond] The Series' adviser uses a quantitative value strategy that chooses
stocks that meet certain criteria relating to price, dividend yield
and the going concern value and debt levels of the issuers. For the
few hundred of the approximately 2,500 companies that survive this
screening, the adviser projects growth in earnings and dividends,
earnings momentum and relative undervaluation based on a dividend
discount model. The adviser develops target prices and value ranges,
and purchases the top-rated stocks. With certain exceptions the
adviser sells when a stock's target price is reached, when the issuer
or its industry suffer negative changes or when there is a change in
the investment criteria that prompted the initial purchase.
[diamond] The Series may invest in convertible securities. Convertible
securities investments will be limited to those in one of the four
highest rating categories of convertible securities. These are
commonly called "investment grade."
[diamond] The Series may obtain fixed interest loans from a bank in amounts up
to one-third the value of its net assets and invest the loan proceeds
in other assets.
[diamond] The Series may engage in "securities lending" to increase its
investment returns.
[diamond] The Series may invest up to 30% of its assets in securities of foreign
(non-U.S.) issuers.
PRINCIPAL RISKS
If you invest in this Series you risk that you may lose your investment.
The Series will seek to increase the value of your shares by investing in
securities the adviser expects to increase in value and to provide current
income. Most of the Series' investments will be in common stocks. Conditions
affecting the overall economy, specific industries or companies in which the
Series invests can be worse than expected. As a result, the value of your shares
may decrease. Dividend, interest and other distributions also can decrease or be
eliminated entirely.
The Series also may invest in small companies as well as large companies.
Smaller companies, regardless of their location, may be affected to a greater
extent than larger companies by changes in general economic conditions and
conditions in particular industries. Smaller companies also may be relatively
new and not have the same operating history and "track record" as larger
companies. This could make future performance of smaller companies more
difficult to predict.
The Series may borrow money to purchase additional securities. If the
additional securities increase in value, the net asset value would increase
sooner than it would have without borrowing. If these securities decrease in
value or do not increase enough to cover interest and other borrowing costs the
Series will suffer greater losses than it would if no borrowing took place.
The Series may invest in financial futures contracts and options. The
adviser will make these investments primarily to try to minimize the risk of
other investments it makes for the Series. These investments may not protect the
Series from losses, they may decrease overall return, and they could, in unusual
circumstances, expose the fund to losses that could be unlimited.
The Series may lend portfolio securities to financial institutions to
increase investment return. If the borrower is unwilling or unable to return the
borrowed securities when due, the Series can suffer losses.
This Series may invest in companies in foreign countries. Political and
economic uncertainty as well as relatively less public information about
investments may negatively impact the Series' portfolio. Some investments may be
made in currencies other than U.S. dollars that will fluctuate in value as a
result of changes in the currency exchange rate. Foreign markets and currencies
may not perform as well as U.S. markets.
PERFORMANCE TABLES
The Phoenix-Hollister Value Equity Series has been in existence only since
March 2, 1998 and thus has not had an annual return for one full calendar year.
The table below shows how the Series' average annual return since inception
compares to that of a broad-based securities market index for that period. You
should expect that the Series' performance will fluctuate from year-to-year,
sometimes significantly. The Series' past performance is not necessarily an
indication of how the Series will perform in the future.
32 Phoenix-Hollister Value Equity Series
<PAGE>
- --------------------------------------------------------------
TOTAL RETURN
(FOR THE PERIOD ENDING 12/31/98)(1) LIFE OF THE SERIES(2)
- --------------------------------------------------------------
Phoenix-Hollister
Value Equity Series 10.79%
- --------------------------------------------------------------
S&P 500 Index(3) 18.95%
- --------------------------------------------------------------
(1) The Series' total return in the table above does not reflect the deduction
of any separate account or contract charges. The return would have been less
than those shown if such charges were deducted.
(2) Since March 2, 1998.
(3) The S&P 500 Index is an unmanaged, but commonly used measure of stock market
total return performance. The Index is not available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees .70%
Distribution and Service (12b-1) Fees None
Other Expenses 1.76%
-----------
TOTAL ANNUAL SERIES' OPERATING EXPENSES(1) 2.46%
=====
(1) The Series' investment adviser has agreed to reimburse through December 31,
1999 the Phoenix-Hollister Value Equity Series' expenses other than
Management Fees and Distribution and Service Fees to the extent that such
expenses exceed 0.15%. Actual Total Annual Series' Operating Expenses after
expense reimbursement were 0.85% for the year ending December 31, 1998.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- ---------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Phoenix-Hollister
Value Equity Series $249 $767 $1,311 $2,796
- ---------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
--------
<S> <C>
Net asset value, beginning of period............................................................... $ 10.00
Income from investment operations
Net investment income............................................................................ 0.05(3)
Net realized and unrealized gain (loss).......................................................... 1.03
----
Total from investment operations............................................................... 1.08
----
Less distributions
Dividends from net investment income............................................................. (0.05)
In excess of net investment income............................................................... --
------
Total distributions............................................................................ (0.05)
------
Change in net asset value.......................................................................... 1.03
----
Net asset value, end of period..................................................................... $ 11.03
=========
Total Return....................................................................................... 10.79%(2)
Ratios/supplemental data:
Net assets, end of period (thousands)............................................................ $ 9,533
Ratio to average net assets of:
Operating expenses............................................................................... 0.85%(1)
Net investment income............................................................................ 0.85%(1)
Portfolio turnover rate............................................................................ 77%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.13
per share.
Phoenix-Hollister Value Equity Series 33
<PAGE>
PHOENIX-OAKHURST GROWTH AND INCOME SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVES
The Phoenix-Oakhurst Growth and Income Series has an investment objective of
seeking dividend growth, current income and capital appreciation. There is no
guarantee that the Series will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The Series will invest in equity securities, primarily common stocks.
Under normal circumstances the Series will invest at least 65% of its
total assets in equity securities.
[diamond] Equity securities include common stock, preferred stock, securities
that can be converted into common stock or preferred stock
("convertible securities"), and warrants to purchase common stock or
preferred stock.
[diamond] The Series' adviser uses a quantitative value strategy to pursue the
Series' investment objective. The strategy concentrates on the 1,500
largest companies traded in the United States. This strategy seeks
securities of companies that are undervalued relative to the market in
general and that have improving fundamentals.
[diamond] The Series will invest only in the four highest rating categories of
convertible securities. These are commonly called "investment grade."
[diamond] The Series may engage in "securities lending" to increase its
investment returns.
[diamond] The Series may invest up to 20% of its assets in securities of foreign
(non-U.S.) issuers. Under normal circumstances, however, the Series
will not invest more than 10% of its assets in foreign securities.
PRINCIPAL RISKS
If you invest in this Series you risk that you may lose your investment.
The Series seeks to outperform the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500") in total return and dividend yield. The S&P 500 total
return can be negative. When this happens, the Series may outperform the S&P 500
but still have a negative return. In that case the value of your shares would
likely decline rather than increase. The adviser also may fail in its objective
to outperform the S&P 500. Most of the Series' investments will be in common
stocks and other equity investments. Conditions affecting the overall economy,
specific industries or companies in which the Series invests can be worse than
expected. As a result, the value of your shares may decrease. Increases in
interest rates affecting the global economy, particular industries or specific
companies can cause fixed income investments that the Series may own to decline
in value. This, too, can cause your share value to decrease.
The adviser intends to invest nearly all of the Series' assets in common
stocks and other securities, rather than holding significant amounts of cash and
short term investments. This can increase the Series' net asset value more
quickly if those investments increase in value. It can cause the Series' net
asset value to decrease more quickly if those investments decrease in value.
This Series also may invest in small companies as well as larger companies.
Smaller companies, regardless of their location, may be affected to a greater
extent than larger companies by changes in general economic conditions and
conditions in particular industries. Smaller companies also may be relatively
new and not have the same operating history and "track record" as larger
companies. This could make future performance of smaller companies more
difficult to predict.
This Series may lend portfolio securities to financial institutions to
increase investment return. If the borrower is unwilling or unable to return the
borrowed securities when due the Series can suffer losses.
This Series may invest in companies in foreign countries. Political and
economic uncertainty as well as relatively less public information about
investments may negatively impact the Series' portfolio. Some investments may be
made in currencies other than U.S. dollars that will fluctuate in value as a
result of changes in the currency exchange rate. Foreign markets and currencies
may not perform as well as U.S. markets.
PERFORMANCE TABLES
The Phoenix-Oakhurst Growth and Income Series has been in existence only
since March 2, 1998, and thus has not had an annual return for one full calendar
year. The table below shows how the Series' average annual return since
inception compares to that of a broad-based securities market index for that
period. You should expect that the Series' performance will fluctuate from
year-to-year, sometimes significantly.
- --------------------------------------------------------------
TOTAL RETURN LIFE OF
(FOR THE PERIOD ENDING 12/31/98)(1) THE SERIES(2)
- --------------------------------------------------------------
Phoenix-Oakhurst Growth and Income Series 20.45%
- --------------------------------------------------------------
S&P 500 Index(3) 18.95%
- --------------------------------------------------------------
(1) The Series' total return in the table above does not reflect the deduction
of any separate account or contract charges. The return would have been less
than those shown if such charges were deducted.
(2) Since March 2, 1998.
(3) The S&P 500 Index is an unmanaged, but commonly used measure of stock market
total return performance. The Index is not available for direct investment.
34 Phoenix-Oakhurst Growth and Income Series
<PAGE>
36 Phoenix-Oakhurst Growth and Income Series
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees .70%
Distribution and Service (12b-1) Fees None
Other Expenses .76%
-----------
TOTAL ANNUAL SERIES' OPERATING EXPENSES(1) 1.46%
=====
(1) The Series' investment advisor has agreed to reimburse through December 31,
1999 the Phoenix-Oakhurst Growth and Income Series' expenses other than
Management Fees and Distribution and Service Fees to the extent that such
expenses exceed 0.15% of the average net assets of the Series. After such
reimbursement the Series' actual total annual operating expenses were .85%
for the year ending December 31, 1998.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- ---------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------
Phoenix-Oakhurst Growth
and $149 $462 $797 $1,746
Income Series
- ---------------------------------------------------------------
Note: Your actual expenses would be lower than those shown in the tables
above since the expense levels used to calculate the figures shown do not
include the reimbursement of expenses over certain levels by the Series'
investment adviser. Refer to the section "Management of the Series" for
information about expense reimbursement.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
--------
<S> <C>
Net asset value, beginning of period.................................................................. $ 10.00
Income from investment operations
Net investment income............................................................................... 0.05(3)
Net realized and unrealized gain (loss)............................................................. 1.99
----
Total from investment operations.................................................................. 2.04
----
Less distributions:
Dividends from net investment income................................................................ (0.05)
Dividends from net realized gains................................................................... --
------
Total distributions............................................................................... (0.05)
------
Change in net asset value............................................................................. 1.99
----
Net asset value, end of period........................................................................ $ 11.99
=========
Total Return.......................................................................................... 20.45%(2)
Ratios/supplemental data:
Net assets, end of period (thousands)............................................................... $ 41,860
Ratio to average net assets of:
Operating expenses.................................................................................. 0.85%(1)
Net investment income............................................................................... 1.02%(1)
Portfolio turnover rate............................................................................... 81%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.05
per share.
Phoenix-Oakhurst Growth and Income Series 35
<PAGE>
PHOENIX-SCHAFER MID-CAP VALUE SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVE
Investment objective of the Phoenix-Schafer Mid-Cap Value Series is
long-term capital appreciation. Current income is a secondary objective of the
Series. There is no guarantee that the Series will achieve its objectives.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The Series will invest in securities which the Adviser believes to
offer the possibility of increase in value.
[diamond] Investments will primarily be in common stocks of established
companies having:
[bullet] a strong financial position;
[bullet] a below average price/earnings ratio; and
[bullet] an above average prospective earnings and dividend growth
rate;
[bullet] total market capitalization between $1.0 billion and $7.5
billion.
[diamond] The Series may invest in convertible securities.
[diamond] The Series may invest up to 20% of its total assets in securities of
foreign issuers.
PRINCIPAL RISKS
If you invest in this Series you risk that you may lose your investment.
The fund will seek to increase the value of your shares by investing in
securities the adviser expects to increase in value and to provide current
income. Most of the Series' investments will be in common stocks. Conditions
affecting the overall economy, specific industries or companies in which the
Series invests can be worse than expected. As a result, the value of your shares
may decrease.
The fund may invest in companies in foreign countries. Political and
economic uncertainty as well as relatively less public information about
investments may negatively impact the Series' portfolio. Some investments may be
made in currencies other than U.S. dollars that will fluctuate in value as a
result of changes in the currency exchange rate. Foreign markets and currencies
may not perform as well as U.S. markets.
PERFORMANCE TABLES
The Phoenix-Schafer Mid-Cap Value Series has been in existence only since
March 2, 1998, and thus has not had an annual return for one full calendar year.
The table below shows how the Series' total return since inception compares to
that of a broad-based securities market index for that period. You should expect
that the Series' performance will fluctuate from year to year, sometimes
significantly.
- -------------------------------------------------------------
TOTAL RETURN LIFE OF
(FOR THE PERIOD ENDING 12/31/98)(1) THE SERIES(2)
- -------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value Series (11.37)%
- -------------------------------------------------------------
S&P 500 Index(3) 18.95%
- -------------------------------------------------------------
(1) The Series' total return in the table above does not reflect the deduction
of any separate account or contract charges. The return would have been
lower than that shown if such charges were deducted.
(2) Since March 2, 1998.
(3) The S&P 500 Index is an unmanaged, but commonly used measure of stock market
total return performance. The Index is not available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees 1.05%
Distribution and Service (12b-1) Fees None
Other Expenses 1.72%
-----------
TOTAL ANNUAL SERIES' OPERATING EXPENSES(1) 2.77%
=====
(1) The Series' investment adviser has agreed to reimburse through December 31,
1999 the Phoenix-Schafer Mid-Cap Value Series' expenses other than
management fees to the extent that such expenses exceed 0.15%. Actual total
Annual Series Operating Expenses after expense reimbursement were 1.20% for
the year ending December 31, 1998.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------
Phoenix-Schafer
Mid-Cap Value Series $280 $859 $1,464 $3,099
- --------------------------------------------------------------
36 Phoenix-Schafer Mid-Cap Value Series
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
--------
<S> <C>
Net asset value, beginning of period...................................................................... $ 10.00
Income from investment operations
Net investment income (loss)............................................................................ 0.03(3,4)
Net realized and unrealized gain (loss)................................................................. (1.16)
------
Total from investment operations...................................................................... (1.13)
------
Less distributions
Dividends from net investment income.................................................................... (0.03)
In excess of net investment income...................................................................... --
------
Total distributions................................................................................... (0.03)
------
Change in net asset value................................................................................. (1.16)
------
Net asset value, end of period............................................................................ $ 8.84
=========
Total Return.............................................................................................. (11.37)%(2)
Ratios/supplemental data:
Net assets, end of period (thousands)................................................................... $ 7,896
Ratio to average net assets of:
Operating expenses...................................................................................... 1.20%(1)
Net investment income................................................................................... 0.52%(1)
Portfolio turnover rate................................................................................... 21%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.11
per share. 4 Computed using average shares outstanding.
Phoenix-Schafer Mid-Cap Value Series 37
<PAGE>
PHOENIX-SENECA MID-CAP GROWTH SERIES
- --------------------------------------------------------------------------------
INVESTMENT RISK AND RETURN SUMMARY
INVESTMENT OBJECTIVES
The Phoenix-Seneca Mid-Cap Growth Series has an investment objective of
capital appreciation. Distribution of investment income, such as dividends and
interest, is incidental in the selection of investments. There is no guarantee
that the Series will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
[diamond] The Series will invest in equity securities, primarily common stocks
of growth companies. Under normal circumstances the Series will invest
at least 65% of its total assets in companies with market
capitalizations between $500 million and $5 billion. The Series may at
times have significant investments in companies with higher or lower
market capitalizations.
[diamond] The adviser is responsible for managing the Series' investment program
and the general operation of the Series. The subadviser manages the
investments of the Series by selecting securities of companies that
meet certain fundamental standards and that the subadviser believes
will demonstrate greater long-term earnings growth than the average
company included in the S&P Midcap 400 Index.
[diamond] The subadviser may buy securities in anticipation of short-term price
gains.
[diamond] The Series may invest in preferred stocks, warrants, and debt
instruments, including bonds convertible into common stocks.
[diamond] The Series may invest up to 35% of its net assets in below investment
grade bonds (so called "junk bonds").
[diamond] The Series may lend up to one-third of its net assets at market value
to increase its investment returns.
[diamond] The Series may invest up to 20% of its assets in securities of foreign
(non-U.S.) issuers.
[diamond] The Series may invest up to 20% of its net assets in options and
futures contracts. The Series intends to invest in these securities
primarily for "hedging" purposes but may invest up to 5% of its net
assets in these securities as an investment unrelated to hedging
purposes.
[diamond] The Series may invest up to 15% of its assets in securities that are
not liquid, such as private placements and repurchase agreements that
have maturities of more than seven days.
[diamond] Temporary Defensive Strategy. If the subadviser believes that market
conditions are not favorable to the Series' principal strategies, the
Series may invest without limit in cash and cash equivalents. When
this happens, the Series may not achieve its investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
PRINCIPAL RISKS
If you invest in this Series you risk that you may lose your investment.
The Series will seek to increase the value of your shares by investing in
securities the subadviser expects to increase in value. Most of the Series'
investments will be in common stocks. Conditions affecting the overall economy,
specific industries or companies in which the Series invests can be worse than
expected. As a result, the value of your shares may decrease. Decreases in share
value from day to day will be "paper" losses unless you actually sell your
shares. If your financial circumstances are likely to require you to sell your
shares at any particular time, rather than holding them indefinitely, you run
the risk that your sale of shares will occur when share values have declined.
The Series may buy securities in anticipation of short-term price gains.
Gains depend on the ability of the subadviser to predict correctly the increase
to securities prices. Securities prices may not increase as anticipated. This
may increase the Series' overall trading volume especially if prices do not rise
as expected. Frequent and active trading may increase transaction costs for the
Series.
The Series' investment focus is on companies with medium capitalizations. It
also may invest in small companies as well as large companies. Investments in
companies with small and medium capitalizations make the Series more volatile
than Series which invest in companies with larger capitalizations. The smaller
companies may be affected to a greater extent than larger companies by changes
in general economic conditions and conditions in particular industries. Smaller
companies also may be relatively new and not have the same operating history and
"track record" as larger companies. This could make future performance of
smaller companies more difficult to predict.
The Series may invest in below investment grade securities (so called "junk
bonds"). Below investment grade securities present a greater risk that the
issuer will not be able to make interest or principal payments on time. If this
happens, the Series would lose income and could expect a decline in the market
value of the securities.
The Series may lend portfolio securities to financial institutions to
increase investment return. If the borrower is unwilling or unable to return the
borrowed securities when due, the Series can suffer losses.
The Series may invest in companies in foreign countries. Political and
economic uncertainty as well as less public information about investments may
negatively impact the Series' portfolio. Some investments may be made in
currencies other than U.S. dollars that will fluctuate in value as a result of
changes in the currency exchange rate. Foreign
38 Phoenix-Seneca Mid-Cap Growth Series
<PAGE>
markets and currencies may not perform as well as U.S. markets.
The Series may buy and write options and enter into futures contracts and
swap agreements primarily to minimize the risk of other investments it makes for
the Series. These investments may not protect the Series from losses, they may
decrease overall return, and they could, in unusual circumstances, expose the
Series to losses that could be unlimited.
The Series may invest in illiquid securities that cannot be sold quickly.
Illiquid securities may have a lower value than comparable securities that have
active markets for resale, and they can lose their value more quickly under
unfavorable conditions.
PERFORMANCE TABLES
The Phoenix-Seneca Mid-Cap Growth Series has been in existence only since
March 2, 1998, and thus has not had an annual return for one full calendar year.
The table below shows how the Series' total return for the life of the Series
compares to that of a broad-based securities market index for that period. You
should expect that the Series performance will fluctuate from year to year,
sometimes significantly.
- ---------------------------------------------------------------
TOTAL RETURN
(FOR THE PERIOD ENDING 12/31/98)(1) LIFE OF THE SERIES(2)
- ---------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth 21.75%
Series
- ---------------------------------------------------------------
S&P Midcap 400 Index(3) 12.21%
- ---------------------------------------------------------------
(1) The Series' total return in the table above does not reflect the deduction
of any separate account or contract charge. The return would have been less
than that shown if such charges were deducted.
(2) Since March 2, 1998.
(3) The S&P Midcap 400 Index is an unmanaged, but commonly used measure of total
return performance of mid-capitalization companies. The Index is not
available for direct investment.
SERIES' EXPENSES
This table illustrates all fees and expenses that you may pay if you buy and
hold shares of the Series.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge None
Redemption Fee None
Exchange Fee None
ANNUAL SERIES' OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM SERIES' ASSETS)
Management Fees .80%
Distribution and Service (12b-1) Fees None
Other Expenses 2.01%
-----------
TOTAL ANNUAL SERIES' OPERATING EXPENSES(1,2) 2.81%
=====
(1) The Series' investment adviser has agreed to reimburse through December 31,
1999 the Phoenix-Seneca Mid-Cap Growth Series' operating expenses other than
Management Fees and Distribution and Service Fees to the extent that such
expenses exceed 0.25%. Actual Total Annual Series' Operating Expenses after
expense reimbursement were 1.05% for the year ending December 31, 1998.
(2) The shares have been offered only since March 2, 1998. The percentages
indicated are estimates before expense reimbursement; actual expenses may be
more or less than the amounts shown.
EXAMPLE
This example is intended to help you compare the cost of investing in the
Series with the cost of investing in other funds.
The example assumes that you invest $10,000 in the Series for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each year
and that the Series' operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------
Phoenix-Seneca Mid-Cap
Growth Series $284 $871 $1,484 $3,138
- --------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth Series 39
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Series' financial performance for the past 5 years (or, if shorter, the period
of the Series' operations). Certain information reflects financial results for a
single share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in the Series (assuming
reinvestment of all dividends and distributions). This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the Series'
financial statements, are included in the SAI or annual report, which is
available upon request.
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
--------
<S> <C>
Net asset value, beginning of period....................................................................... $ 10.00
Income from investment operations
Net investment income.................................................................................... 0.01(3,4)
Net realized and unrealized gain (loss).................................................................. 2.16
----
Total from investment operations....................................................................... 2.17
----
Less distributions
Dividends from net investment income..................................................................... (0.01)
In excess of net investment income....................................................................... --
Total distributions.................................................................................... (0.01)
------
Change in net asset value.................................................................................. 2.16
----
Net asset value, end of period............................................................................. $ 12.16
=========
Total Return............................................................................................... 21.75%(2)
Ratios/supplemental data:
Net assets, end of period (thousands).................................................................... $ 7,897
Ratio to average net assets of:
Operating expenses....................................................................................... 1.05%(1)
Net investment income.................................................................................... 0.15%(1)
Portfolio turnover rate.................................................................................... 127%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.15
per share.
(4) Computed using average shares outstanding.
40 Phoenix-Seneca Mid-Cap Growth Series
<PAGE>
ADDITIONAL DISCUSSION OF EACH SERIES' INVESTMENT STRATEGIES AND MANAGEMENT
- --------------------------------------------------------------------------------
PHOENIX RESEARCH ENHANCED INDEX SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
Phoenix Research Enhanced Index Series has an investment objective to seek
high total return by investing in a broadly diversified portfolio of equity
securities.
PRINCIPAL INVESTMENT STRATEGIES
The Series invests in a diversified portfolio of securities of large and
medium capitalized companies within the market sectors reflected in the S&P 500.
Under normal market conditions, the Series will invest at least 80% of its
total assets in common stocks and other equity securities.
The Series will invest in securities that the adviser believes to be
undervalued and which offer growth potential and an overall volatility of return
similar to that of the S&P 500.
The S&P 500 is a market weighted compilation of 500 common stocks selected
on a statistical basis by Standard & Poor's Corporation. The S&P 500 is
typically composed of issues in the following sectors:
[diamond] industrial,
[diamond] financial,
[diamond] public utilities, and
[diamond] transportation.
The Adviser and/or Subadviser will seek to reduce the Series' volatility
relative to the S&P 500 by attempting to generally match the Series' equities
holdings to various risk characteristics of the S&P 500 such as market
capitalization, weightings and diversification. The Subadviser then uses
fundamental analysis and systematic stock valuation to exclude stocks within
economic sectors which appear to be extremely overvalued.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
The Series' primary focus is high total return. The adviser intends to
invest Series assets so that your shares increase in value. However, the value
of the Series' investments that support your share value can decrease as well as
increase. If between the time you purchase shares and the time you sell shares
the value of the Series' investments decreases you will lose money. The value of
the Series' investments can decrease for a number of reasons. For example,
changing economic conditions may cause a decline in the value of many or even
most equity and fixed income investments. Particular industries can face poor
markets for their products or services so that companies engaged in those
businesses do not do as well as companies in other industries. Interest rate
changes may improve prospects for certain types of businesses and they many
worsen prospects for others. To the extent that the Series' investments are
affected by general economic declines, declines in industries, and interest rate
changes that negatively affect the companies in which the Series invests,
Series' share values may decline.
Share values also can decline if the specific companies selected for Series
investment fail to perform as the adviser expects, regardless of general
economic trends, industry trends, interest rates and other economic factors.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to the
fund and is located at 56 Prospect Street, Hartford, CT 06115. PIC also acts as
the investment adviser for 14 other mutual funds, as subadviser to three
additional mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated (JPM & Co.), serves as subadviser
to the Phoenix Research Enhanced Index Series. J.P. Morgan's principal place of
business is located at 522 Fifth Avenue, New York, New York 10036. J.P. Morgan
presently serves as an investment manager for corporate, public and union
employee benefit funds, foundations, endowments, insurance companies, government
agencies and the accounts of other institutional investors. J.P. Morgan was
founded in 1984. JPM & Co., through J.P. Morgan and its other investment
management subsidiaries, had approximately $316 billion in assets under
management as of December 31, 1998.
Phoenix Edge Series Fund 41
<PAGE>
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and J.P. Morgan, as subadviser, is
responsible for the day-to-day management of the holdings of the Series. Both
PIC and J.P. Morgan manage the Series' assets to conform with the investment
policies as described in this prospectus. The Series pays PIC a monthly
investment management fee that is accrued daily against the value of that
Series' net assets at the rate of 0.45% annually.
During the Series' last fiscal year, the Series paid total management fees
of $218,150. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .45%.
PORTFOLIO MANAGEMENT
Mr. Timothy Devlin and Mr. James Wiess are coportfolio managers of the
Phoenix Research Enhanced Index Series and, as such, are primarily responsible
for the day-to-day management of the Series' investments. Mr. Devlin has served
as a vice president of J.P. Morgan since July 1996 and is a member of the
Structured Equity Group where he has the dual responsibilities of client
servicing and portfolio management. From 1987 to 1996, he served as first vice
president of Mitchell Hutchins where he managed quantitatively-driven equity
portfolios for institutional and retail investors. Mr. Wiess is a vice president
of J.P. Morgan and is a portfolio manager in the Structured Equity Group where
he has the responsibility of portfolio rebalancing and research and development
of structured equities. Prior to joining J.P. Morgan in 1992, Mr. Wiess was a
stock index arbitrager for seven years at Oppenheimer & Co.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the Series if such modifications and conversions are not completed timely.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-ABERDEEN INTERNATIONAL SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Series' investment objective is high total return consistent with
reasonable risk. There is no guarantee that the Series will achieve its
investment objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series invests in a diversified portfolio of securities of non-U.S.
issuers, including companies, governments, governmental agencies and
international organizations. The Series may invest in any region of the world.
Under normal circumstances, the Series will invest at least 80% of its total
assets in the securities of issuers located in at least three different
countries.
The Series will invest primarily in common stocks. The Series also may
invest in other equity securities, including preferred stocks, securities
convertible into common stocks, warrants and rights to purchase common stock and
in bonds, notes and other debt securities. Although the Series intends to invest
primarily in established companies, the Series may invest in securities of
issuers of any size, in countries with developed markets and countries with
emerging markets.
The Series also may invest in nonconvertible fixed income securities of
non-U.S. issuers (described below) when the adviser feels that such securities
are appropriate for the achievement of the Series' investment objective. Market
values of fixed income securities typically move in the opposite direction from
changes in interest rates. Therefore, investing in fixed income securities can
provide an opportunity for capital appreciation when interest rates are expected
to decline.
The nonconvertible fixed income securities referred to above may consist of:
[diamond] corporate notes, bonds, debentures and other securities (such as
Euro-currency instruments) of non-U.S. issuers that are rated within
the three highest rating categories of rating services or, if unrated,
are deemed by the adviser to be of comparable credit quality;
[diamond] securities issued by foreign governments and supranational agencies
(such as the World Bank).
The Series may invest up to 10% of its net assets in fixed income securities
rated below investment grade (commonly referred to as "junk bonds").
Temporary defensive strategy: if the adviser believes that market conditions
are not favorable to the Series' principal strategies, the Series may invest
without limit in U.S. government securities and in money market
42 Phoenix Edge Series Fund
<PAGE>
instruments. When this happens, the Series may not achieve its investment
objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is total return. The adviser intends to invest assets so
that your shares increase in value. However, the value of the Series'
investments that support your share value can decrease as well as increase. If
between the time you purchase shares and the time you sell shares the value of
the Series' investments decreases you will lose money. The value of the Series'
investments can decrease for a number of reasons. For example, changing economic
conditions may cause a decline in the value of many or even most equity and
fixed income investments. Particular industries can face poor markets for their
products or services so that companies engaged in those businesses do not do as
well as companies in other industries. Interest rate changes may improve
prospects for certain types of businesses and they may worsen prospects for
others. To the extent that the Series' investments are affected by general
economic declines, declines in industries, and interest rate changes that
negatively affect the companies in which the Series invests, Series share values
may decline. Share values also can decline if the specific companies selected
for Series investment fail to perform as the adviser or subadviser expects,
regardless of general economic trends, industry trends, interest rates and other
economic factors.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
FOREIGN INVESTING
The Series will invest in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards,
[diamond] generally higher commission rates on foreign portfolio transactions,
[diamond] differences and inefficiencies in transaction settlement systems,
[diamond] the possibility of expropriation or confiscatory taxation,
[diamond] adverse changes in investment or exchange control regulations,
[diamond] political instability, and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as relatively less public
information about investments may negatively impact the Series' portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
FOREIGN CURRENCY
Significant portions of the Series' assets may be invested in securities
denominated in foreign currencies. Changes in foreign exchange rates will affect
the value of those securities denominated or quoted in currencies other than the
U.S. dollar. The forces of supply and demand in the foreign exchange markets
determine exchange rates and these forces are in turn affected by a range of
economic, political, financial, governmental and other factors. Exchange rate
fluctuations can affect the Series' net asset value (share price) and dividends
either positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the short and long terms.
Effective January 1, 1999, eleven European countries began converting from
their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one or more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] Known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
[diamond] Competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
[diamond] Issuers' ability to make required information technology updates on a
timely basis, and costs
Phoenix Edge Series Fund 43
<PAGE>
associated with the conversion (including costs of dual currency
operations through January 1, 2002);
[diamond] Currency exchange rate risk and derivatives exposure (including the
disappearance or price sources, such as certain interest rate
indices); and
[diamond] Potential tax consequences.
EMERGING MARKET INVESTING
The Series may invest in companies located in emerging market countries and
regions. Investment in less-developed countries whose markets are still emerging
generally presents risks in greater degree than those presented by investment in
foreign issuers based in countries with developed securities markets and more
advanced regulatory systems. Prior governmental approval of foreign investments
may be required under certain circumstances in some developing countries, and
the extent of foreign investment in domestic companies may be subject to
limitation in other developing countries. The charters of individual companies
in developing countries may impose limitations on foreign ownership to prevent,
among other concerns, violation of foreign investment limitations.
The economies of developing countries generally are heavily dependent upon
international trade and, accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been (and may
continue to be) adversely affected by economic conditions in the countries with
which they trade.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in large and small companies throughout the world.
Companies with small capitalization are often companies with a limited operating
history or companies in industries which have recently emerged due to cultural,
economic, regulatory or technological developments. Such developments can have a
significant positive or negative effect on small capitalization companies and
their stock performance. Given the limited operating history and rapidly
changing fundamental prospects, investment returns from smaller capitalization
companies can be highly volatile. Smaller companies may find their ability to
raise capital impaired by their size or lack of operating history. Product lines
are often less diversified and subject to competitive threats. Smaller
capitalization stocks are subject to varying patterns of trading volume and may,
at times, be difficult to sell.
MUTUAL FUND INVESTING
The Series may invest in other mutual funds to take advantage of investment
opportunities in certain countries where the Series otherwise would not be able
to invest or where the size of a Series investment in any particular country
would be too small. The Series may invest up to 10% of its assets in the shares
of other mutual funds. However, the Series will not invest more than 5% of its
assets in any one mutual fund. When the Series purchases shares of another
mutual fund, the assets invested in the other mutual fund incur a layering of
expenses, including operating costs, advisory fees, and administrative fees that
you indirectly bear.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES' INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
Issuers of securities in countries outside of the U.S., particularly in
emerging markets, may be more susceptible to Year 2000 problems and may not be
required to make the same level of disclosure regarding Year 2000 readiness as
is required in the U.S. Similarly, the Series could experience difficulties in
effecting transactions if any of its foreign subcustodians, foreign
broker-dealers or foreign exchanges are not ready for Year 2000.
MANAGEMENT OF THE SERIES
THE ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to the
fund and is located at 56 Prospect Street, Hartford, CT 06115. PIC also acts as
the investment adviser for 14 other mutual funds, as subadviser to three
additional mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Aberdeen Fund Managers, Inc. ("Aberdeen") is the investment subadviser to
the Series and is located at One Financial Plaza, Suite 2210, NationsBank Tower,
Fort Lauderdale, Florida 33394. Aberdeen acts as subadviser to two other funds.
As of December 31, 1998, Aberdeen had $1.3 billion under management.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
Series' portfolio and managing the Series' assets to conform with the investment
policies as described in this prospectus. The Series pays PIC a monthly
investment management fee that is accrued daily against the value of the Series'
net assets at the following rates.
44 Phoenix Edge Series Fund
<PAGE>
- ---------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- ---------------------------------------------------------------
Management 0.75% 0.70% 0.65%
Fee
- ---------------------------------------------------------------
During the Series' last fiscal year, the Series paid total management fees
of $1,704,109. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .75%. The total advisory fee of 0.75% of the
aggregate net assets of the Series is greater than that for most mutual funds;
however, the Trustees have determined that it is comparable to fees charged by
other mutual funds whose investment objectives are similar to those of the
Series.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
PORTFOLIO MANAGEMENT
The investment and trading decisions for the Phoenix-Aberdeen International
Series are made by a team of the Adviser's equity investment professionals. The
Adviser has retained Aberdeen Fund Managers, Inc. for advice and assistance in
making investment and trading decisions. Aberdeen Fund Managers, Inc. does not
have discretionary authority to manage the Phoenix-Aberdeen International
Series.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES' OPERATIONS
The Trustees have directed management to ensure that the systems used by service
providers (PIC and its affiliates) in support of the Series' operations be
assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the fund if such modifications and conversions are not timely completed.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the fund and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-ABERDEEN NEW ASIA SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Series has an investment objective of long-term capital appreciation.
Distribution of investment income, such as dividends and interest, is incidental
in the selection of investments. There is no guarantee that the Series will
achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series invests in a diversified portfolio of primarily equity securities
of companies located in Asia (other than Japan). Under normal circumstances, the
Series intends to invest at least 65% of its total assets invested in the equity
securities of such companies.
The adviser selects securities of companies that meet certain fundamental
standards and that the adviser believes have the market potential for above
average market appreciation.
The Series will, under normal circumstances, invest at least 65% of its
total assets in a diversified portfolio of equity securities of issuers
organized and principally doing business in Asia, other than Japan, and whose
principal securities, such as common stock, are actively traded on recognized
stock exchanges of those countries.
A company is principally operating in Asia if
[diamond] at least 50% of revenues or profits are from Asian countries or
[diamond] at least 50% of their assets are located in Asian countries.
The Series ordinarily will be invested in three or more of the following
countries:
[diamond] China [diamond] Hong Kong
[diamond] India [diamond] Indonesia
[diamond] South Korea [diamond] Malaysia
[diamond] Pakistan [diamond] Philippines
[diamond] Singapore [diamond] Sri Lanka
[diamond] Taiwan [diamond] Thailand
If the adviser considers it appropriate, the Series also may invest in South
Pacific nations such as Australia and New Zealand.
In determining the appropriate distribution of investments among various
countries and geographic regions, the Adviser ordinarily will consider the
following factors:
Phoenix Edge Series Fund 45
<PAGE>
[diamond] prospects for relative economic growth among Asian countries;
[diamond] expected levels of inflation;
[diamond] relative price levels of the various capital markets;
[diamond] governmental policies influencing business conditions;
[diamond] the outlook for currency relationships; and
[diamond] the range of individual investment opportunities available to the
international investor.
The Series also may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the
issuer at predetermined time(s), price(s) or price formula. A convertible
security entitles the owner to receive interest paid or accrued on a debt
security or dividends paid on preferred stock until the security matures or is
converted to common stock. Convertible securities have several unique
investments characteristics, such as:
[diamond] higher yields than common stocks but lower yields than comparable
nonconvertible securities;
[diamond] typically less fluctuation in value than the "underlying" common
stock, that is, the common stock that the investor receives if he
converts;
[diamond] the potential for capital appreciation if the market price of the
underlying common stock increases.
In certain countries, investments may be made only by investing in other
investment companies that, in turn, are authorized to invest in the securities
that are issued in such countries. The Series may therefore invest in the
securities of other investment companies subject to the limitations. The Series'
purchase of the securities of other investment companies (and closed-end
companies) results in the layering of expenses, including operating costs,
investment advisory and administrative fees.
The Series may establish and maintain reserves of up to 100% of its assets
for temporary defensive purposes under abnormal market or economic conditions.
The Series' reserves may be invested in domestic as well as foreign short-term
money market instruments, including, but not limited to:
[diamond] government obligations;
[diamond] certificates of deposit;
[diamond] bankers' acceptances;
[diamond] time deposits;
[diamond] commercial paper;
[diamond] short-term corporate debt securities; and
[diamond] repurchase agreements.
When the Series' assets are held in cash or cash equivalents, it is not
investing in securities intended to meet the Series' investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
FOREIGN INVESTING
The Series invests in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards;
[diamond] generally higher commission rates on foreign portfolio transactions;
[diamond] differences and inefficiencies in transaction settlement systems;
[diamond] the possibility of expropriation or confiscatory taxation;
[diamond] adverse changes in investment or exchange control regulations;
[diamond] political instability; and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as less public information about
investments may negatively impact the Series' portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility.
Additionally, dividends and interest payable on foreign securities may be
subject to foreign taxes withheld prior to receipt by the fund.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Moreover, individual foreign economies may differ favorably or unfavorably
from the U.S. economy in such respects as growth of gross national product, rate
of inflation, capital reinvestment, resource self-sufficiency and balance of
payment positions.
46 Phoenix Edge Series Fund
<PAGE>
FOREIGN CURRENCY
Portions of the Series' assets will be invested in securities denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
those securities denominated or quoted in currencies other than the U.S. dollar.
The forces of supply and demand in the foreign exchange markets determine
exchange rates and these forces are in turn affected by a range of economic,
political, financial, governmental and other factors. Exchange rate fluctuations
can affect the Series' net asset value (share price) and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the long and short terms.
In addition, when certain foreign countries experience economic
difficulties, there is an increased risk that the foreign government may impose
restrictions on the free exchange of its currency.
Effective January 1, 1999, eleven European countries began converting from
their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one or more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] Known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
[diamond] Competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
[diamond] Issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
[diamond] Currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
[diamond] Potential tax consequences.
EMERGING OR DEVELOPING MARKETS
The Series will make investments in developing or emerging countries which
involve exposure to economic systems that are generally less diverse and mature
than in the United States, and to political systems that are less stable. In the
past, markets of developing countries have been more volatile than the markets
of developed countries.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
Issuers of securities in countries outside of the U.S., particularly in
emerging markets, may be more susceptible to Year 2000 problems and may not be
required to make the same level of disclosure regarding Year 2000 readiness as
is required in the U.S. Similarly, the Series could experience difficulties in
effecting transactions if any of its foreign subcustodians, foreign
broker-dealers or foreign exchanges are not ready for Year 2000.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix-Aberdeen International Advisors, LLC ("PAIA") is the investment
adviser to the Series and is located at 56 Prospect Street, Hartford, CT 06115.
PAIA also acts as the investment adviser to Phoenix-Aberdeen Series Fund. As of
December 31, 1998, PAIA had $43.9 million in assets under management.
Subject to the direction of the fund's Board of Trustees, PAIA is
responsible for managing the Series' investment program and the day-to-day
management of the Series' portfolio. PAIA manages the Series' assets to conform
with the investment policies as described in this prospectus. The Series pays
PAIA a monthly investment management fee that is accrued daily against the value
of the Series' net assets at the rate of 1.00% annually.
During the Series' last fiscal year, the Series paid total management fees
of $93,715. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was 1.00%.
PORTFOLIO MANAGEMENT
Aberdeen Fund Managers, Inc. ("Aberdeen") is the investment subadviser to
the Series and is located at One Financial Plaza, Suite 2210, NationsBank Tower,
Fort Lauderdale, Florida 33394. Aberdeen acts as subadviser to two other funds.
As of December 31, 1998, Aberdeen had $1.3 billion under management.
Phoenix Edge Series Fund 47
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PAIA and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PAIA has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PAIA management believes that the majority of
these systems are already Year 2000 compliant. PAIA believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PAIA or its affiliates or
the Series if such modifications and conversions are not completed timely.
PAIA will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PAIA.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Phoenix-Duff & Phelps Real Estate Securities Series has an investment
objective of capital appreciation and income with approximately equal emphasis
on each. There is no guarantee that the Series will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series will invest in marketable securities of publicly traded real
estate investment trusts ("REITs") and companies that are principally engaged in
the real estate industry. Under normal circumstances, the Series intends to
invest at least 75% of the Series' total assets in these securities.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans. Generally, REITs can be
classified as equity REITs, mortgage REITs or hybrid REITs.
[diamond] Equity REITs invest the majority of their assets directly in real
property and derive income primarily from the collection of rents.
Equity REITs also can realize capital gains by selling properties that
have appreciated in value.
[diamond] Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments.
[diamond] Hybrid REITs combine the characteristics of both equity REITs and
mortgage REITs.
The Series intends to emphasize investment in equity REITs.
In determining whether an issuer is "principally engaged" in the real estate
industry, the Adviser seeks companies which derive at least 50% of their gross
revenues or net profits from the ownership, development, construction,
financing, management or sale of commercial, industrial or residential real
estate. The equity securities of real estate companies considered for purchase
by the Series will consist of shares of beneficial interest, marketable common
stock, rights or warrants to purchase common stock, and securities with common
stock characteristics such as preferred stock and debt securities convertible
into common stocks.
The Series also may invest up to 25% of its total assets in
[diamond] marketable debt securities of companies principally engaged in the
real estate industry
[diamond] mortgage-backed securities such as mortgage pass-through certificates,
real estate mortgage investment conduit ("REMIC") certificates and
collateralized mortgage obligations ("CMOS")
[diamond] short-term investments
The Series invests in debt securities only if, at the date of investment,
they are rated within the four highest grades as determined by Moody's or by S&P
or, if not rated are judged by the Adviser to be of equivalent quality.
Securities rated at the lowest of the four grades are medium grade investment
obligations that may have speculative characteristics. Changes in economic
conditions or other circumstances are more likely to lead to a weakened ability
to make principal and interest payments in the case of such obligations than is
the case of higher grade securities. The Series is not required to dispose of
debt securities whose credit quality falls below investment grade. Unrated debt
securities may be less liquid then comparable rated debt securities and may
involve somewhat greater risk then rated debt securities.
For temporary defensive purposes (as when market conditions in real estate
securities are so extraordinarily adverse that the Adviser believes there are
extraordinary risks associated with investment in those securities), the Series
may invest up 100% of its total assets in short-term investments such as money
market instruments consisting of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; repurchase agreements;
certificates of deposit and bankers' acceptances issued by banks or savings and
loan associations having net assets of at lease $500 million; high-grade
commercial paper rated
48 Phoenix Edge Series Fund
<PAGE>
at time of purchase in the top two categories by a national rating agency or
determined to be of comparable quality by the Adviser; and other long- and
short-term instruments which are rated A or higher by S&P or Moody's at the time
of purchase.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is capital appreciation and income. The value of your
shares is based on the market value of the Series' investments. However, the
value of the Series' investments that support your share value can decrease as
well as increase. If between the time you purchase shares and the time you sell
shares the value of the Series' investments decreases, you will lose money. The
value of the Series' investments can decrease for a number of reasons. For
example, changing economic conditions may cause a decline in the value of many
or most investments. Particular industries can face poor market conditions for
their products or services so that companies engaged in those businesses do not
perform as well as companies in other industries. Interest rate changes may
improve prospects for certain types of businesses and they may worsen prospects
for others. Share values also can decline if the specific companies selected for
fund investment fail to perform as the adviser expects, regardless of general
economic trends, industry trends, interest rates and other economic factors.
In the case of fixed income securities, the value of the security will be
directly affected by trends in interest rates and the overall condition of
credit markets. For example, in times of rising interest rates, the value of
these types of securities tends to decrease. When interest rates fall, the value
of these securities tends to rise. Income distribution also will affect the
Series' return. If the adviser misjudges the ability of the issuer of a
portfolio security to make scheduled interest or other income payments to the
Series, the Series' income available for distribution to shareholders may
decrease.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that your should note.
The Series is "non-diversified" under the federal securities laws. As a
non-diversified portfolio, there is no restriction on the percentage of assets
that may be invested at any time in the securities of any one issuer. To the
extent that the Series is in fact not well diversified, it may be more
vulnerable to adverse economic, political or regulatory developments affecting a
single issuer than would be the case if it were more broadly diversified.
Although the Series does not invest directly in real estate, it does invest
primarily in real estate securities and, as a result, the value of shares of the
Series will fluctuate in response to changes in economic conditions within the
real estate industry. Risks associated with the direct ownership of real estate
and with the real estate industry in general include:
[diamond] possible declines in the value of real estate;
[diamond] risks related to general and local economic conditions;
[diamond] possible lack of availability of mortgage funds;
[diamond] over-building;
[diamond] extended vacancies of properties;
[diamond] increases in competition, property taxes and operating expenses;
[diamond] changes in zoning laws;
[diamond] costs of clean-up of and liability for environmental problems;
[diamond] casualty or condemnation losses;
[diamond] uninsured damages from flood, earthquakes or other natural disasters;
[diamond] limitations on and variations in rents;
[diamond] dependency on property management skill;
[diamond] the appeal of properties to tenants; and
[diamond] changes in interest rates.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are:
[diamond] dependent upon management skills,
[diamond] are not diversified, and
[diamond] are subject to the risks of financing projects.
The Series may invest in new or unseasoned REIT issuers and it may be
difficult or impossible for the Adviser to ascertain the value of the REIT's
underlying assets, management capabilities and growth prospects. REITs whose
underlying assets include long-term health care projects, such as nursing,
retirement and assisted living homes may be affected by federal regulations
concerning the health care industry.
REITs (especially mortgage REITs) are subject to interest rate risks. When
interest rated decline, the value of a REIT's investment in fixed rate
obligations usually rises. Conversely, when interest rates rise, the value of a
REIT's investment in fixed rate obligations can be expected to decline. On the
other hand, since interest
Phoenix Edge Series Fund 49
<PAGE>
rates on adjustable rate mortgage loans are reset periodically, yields on a
REIT's investment in such loans will gradually align themselves to current
market interest rates. The value of such investments fluctuate less dramatically
in response to interest rate fluctuations than would investments in fixed rate
obligations.
In addition, investing in REITs involves risks similar to those associated
with investing in small capitalization companies. REITs may have limited
financial resources, may trade less frequently and in a limited volume and may
be more subject to abrupt or erratic price movements than larger capitalization
stocks included in the S&P 500 Index.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
It is difficult to predict cash flows from mortgage-backed securities.
Payments of principal and interest on the underlying mortgages may be allocated
among classes in a variety of ways, and the inability to determine specific
amounts and timing of prepayments of the underlying loans make it difficult to
accurately predict cash flow. The variability of prepayments will tend to limit
price gains when interest rates drop and exaggerate price declines when interest
rates rise.
In the event of high prepayments, the Series may be required to invest these
proceeds at a lower interest rate, causing the Series to earn less than if the
prepayments had not occurred. Generally, prepayments will increase during a
period of falling interest rates.
GOVERNMENT SECURITIES
Obligations issued or guaranteed by federal, state, and municipal
governments, agencies, authorities and instrumentalities only guarantee
principal and interest will be timely paid to holders of the securities. The
entities do not guarantee that the value of Series shares will increase.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Duff & Phelps Investment Management Co. ("DPIM") is the investment adviser
of the Series. DPIM is a subsidiary of Phoenix Investment Partners, Inc. ("PXP")
and is located at 55 East Monroe Street, Suite 3600, Chicago, Illinois 60603.
PXP is a NYSE traded company that provides investment management and related
services to institutional investors, corporations and individuals through
operating subsidiaries. DPIM also serves as investment adviser to the Core
Equity Fund of Phoenix Equity Series Fund, the Enhanced Reserves, Core Equity
and Real Estate Equity Securities Portfolios of Phoenix Duff & Phelps
Institutional Mutual Funds, the Real Estate Securities Portfolio of Phoenix
Multi-Portfolio Fund and three closed-end funds: Duff & Phelps Utilities Income
Inc., Duff & Phelps Utilities Tax-Free Income Inc. and Duff & Phelps Utility and
Corporate Bond Trust Inc. As of December 31, 1998, DPIM had approximately $15.2
billion in assets under management.
Subject to the direction of the fund's Board of Trustees, DPIM is
responsible for managing the Series' investment program and the day-to-day
management of the Series' portfolio. DPIM manages the Series' assets to conform
with the investment policies as described in this prospectus. The Series pays
DPIM a monthly investment management fee that is accrued daily against the value
of the Series' net assets at following rates.
- -------------------------------------------------------------
$1+ BILLION
1ST BILLION THROUGH $2 BILLION $2+ BILLION
- -------------------------------------------------------------
Management Fee 0.75% 0.70% 0.65%
- -------------------------------------------------------------
During the fund's last fiscal year, the Series paid total management fees of
$350,294. The ratio of management fees to average net assets for the fiscal year
ended December 31, 1998 was .75%.
PORTFOLIO MANAGEMENT
Mr. Michael Schatt is responsible for managing the assets of the
Phoenix-Duff & Phelps Real Estate Securities Series. Mr. Schatt is employed as
managing director of PXP and is a vice president of the Fund, Phoenix Duff &
Phelps Institutional Mutual Funds, Phoenix Multi-Portfolio Fund, Phoenix Duff &
Phelps Utilities Income Inc. and DPIM. His current responsibilities include
serving as coportfolio manager of the Real Estate Securities Portfolio of
Phoenix Multi-Portfolio Fund, the Real Estate Equity Securities Portfolio of
Phoenix Duff & Phelps Institutional Mutual Funds, and managing the real estate
investment securities of Duff & Phelps Utilities Income Inc. Previously he
served as director of the Real Estate Advisory Practice for Coopers & Lybrand,
LLC, and has over 16 years experience in the real estate industry.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers, (DPIM and its affiliates) in support of the Series'
operations be assessed and brought into Year 2000 compliance. Based upon
preliminary assessments, DPIM has determined that it will be required to modify
or replace portions of their software so that its computer systems will properly
utilize dates beyond December 31, 1999. DPIM management believes
50 Phoenix Edge Series Fund
<PAGE>
that the majority of these systems are already Year 2000 compliant. DPIM
believes that with modifications to existing software and conversions to new
software, the Year 2000 issue will be mitigated. It is anticipated that such
modifications and conversions will be completed on a timely basis. It is not
known at this time if there could be a material impact on the operations of DPIM
or its affiliates or the fund if such modifications and conversions are not
completed timely.
DPIM will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of DPIM.
PHOENIX-ENGEMANN NIFTY FIFTY SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
Phoenix-Engemann Nifty Fifty Series has an investment objective to seek
long-term capital gain. There is no guarantee that the Series will achieve its
investment objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series will invest in approximately 50 different securities which the
adviser believes represent the best potential to achieve long-term growth of
capital. Dividend and interest income to be received from portfolio securities
is largely incidental.
Under normal market conditions, the Series will invest at least 75% of its
total assets in common stocks of high quality growth companies; most companies
will have at least $50 million in annual net income.
Companies whose common stock is purchased by the Series will be listed on
the NYSE or would satisfy the applicable listing requirements of the NYSE with
respect to demonstrated earning power, years in operation, number of publicly
held shares and net tangible assets.
Under normal conditions, up to 25% of the Series' total assets will be
invested in common stocks of corporations with rapidly growing earnings per
share or in common stocks of corporations that are believed to be undervalued in
the adviser's opinion. While some of these companies may be well-known and
established many will be unseasoned.
The Series may invest in preferred stock, warrants and convertible debt
obligations if the adviser believes these investments will help meet the Series'
objectives.
Please refer to the Statement of Additional Information for more detailed
information about these and other investments.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' primary focus is long-term capital appreciation. The adviser
intends to invest Series assets so that your shares increase in value. However,
the value of the Series' investments that support your share value can decrease
as well as increase. If between the time you purchase shares and the time you
sell shares the value of the Series' investments decreases you will lose money.
The value of the Series' investments can decrease for a number of reasons. For
example, changing economic conditions may cause a decline in the value of many
or even most equity and fixed income investments. Particular industries can face
poor markets for their products or services so that companies engaged in those
businesses do not do as well as companies in other industries. Interest rate
changes may improve prospects for certain types of businesses and they may
worsen prospects for others. To the extent that the Series' investments are
affected by general economic declines, declines in industries, and interest rate
changes that negatively affect the companies in which the Series invests,
Series' share values may decline. Share values also can decline if the specific
companies selected for Series investment fail to perform as the adviser expects,
regardless of general economic trends, industry trends, interest rates and other
economic factors.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies with a limited operating history or companies
in industries that have recently emerged due to cultural, economic, regulatory
or technological developments. Such developments can have significant positive
or negative effect on small capitalization companies and their stock
performance. Given the limited operating history and rapidly changing
fundamental prospects, investment returns from smaller capitalization companies
can be highly volatile. Smaller companies may find their ability to raise
capital impaired by their size or lack of operating history. Product lines are
often less diversified and subject to competitive threats. Smaller
capitalization stocks are subject to varying patterns of trading volume and may,
at times, be difficult to sell.
REDUCED DIVERSIFICATION
This Series will invest in a much smaller number of companies than the
average equity growth fund. Consequently, this Series may be more sensitive to
changes in the market value of a single issuer or of an
Phoenix Edge Series Fund 51
<PAGE>
industry held in its portfolio. The net asset value of the Series may fluctuate
substantially. This Series may not be appropriate for short-term investors.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to the
Series and is located at 56 Prospect Street, Hartford, CT 06115. PIC also acts
as the investment adviser for 14 other mutual funds, as subadviser to three
additional mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Roger Engemann & Associates ("Engemann") serves as subadviser to the
Phoenix-Engemann Nifty Fifty Series. Engemann is a wholly owned subsidiary of
Pasadena Capital Corporation which, in turn, is a wholly-owned subsidiary of
PXP. Engemann has been engaged in the investment management business since 1969
and provides investment counseling services to retirement plans, colleges,
corporations, trusts and individuals. Engemann also serves as investment adviser
to the Phoenix-Engemann Funds. As of December 31, 1998, Engemann had
approximately $7.8 billion in assets under management.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
domestic portion of the Series' portfolio. Engemann, as subadviser, is
responsible for the day-to-day management of the holdings of the Series. Both
PIC and Engemann manage the Series' assets to conform with the investment
policies as described in this prospectus. The Series pays PIC a monthly
investment management fee that is accrued daily against the value of that
Series' net assets at the following rates.
- --------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- --------------------------------------------------------------
Management 0.90% 0.85% 0.80%
Fee
- --------------------------------------------------------------
During the Series' last fiscal year, the Series paid total management fees
of $48,195. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .90%. The total advisory fee of 0.90% of the
aggregate net assets of the fund is greater than that for most funds; however,
the Trustees have determined that it is comparable to fees charged by other
mutual funds whose investment objectives are similar to those of the Series.
PORTFOLIO MANAGEMENT
Mr. Roger Engemann, Mr. James E. Mair and Mr. John S. Tilson are primarily
responsible for the day-to-day management of the Series. Messrs. Engemann, Mair
and Tilson also manage the investment portfolio of Phoenix Aggressive Growth
Fund of Phoenix Series Fund. Each is a managing director, equities of PIC. Mr.
Engemann has been president of Engemann since its inception. Messrs. Mair and
Tilson are both executive vice presidents of Engemann, and both have been with
Engemann since 1983.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the Series if such modifications and conversions are not completed timely.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-GOODWIN BALANCED SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Phoenix-Goodwin Balanced Series has investment objectives of reasonable
income, long-term capital growth and conservation of capital. There is no
guarantee that the Series will achieve its objectives.
52 Phoenix Edge Series Fund
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The Series invests in a portfolio of common stocks and fixed income
securities. Under normal circumstances the Series intends to invest at least 65%
of its total assets in these securities. At least 25% of assets will be invested
in fixed income securities that are rated within the four highest rating
categories. The Series may invest in foreign and domestic companies of all
sizes. Fixed income securities in which the Series may invest include, U.S. and
foreign government securities, corporate bonds, municipals, and mortgage- and
asset-backed securities. Credit ratings for fixed income securities are
established by nationally recognized statistical rating organizations. Please
see the Statement of Additional Information for a detailed list of rating
categories.
The adviser will use four criteria to select investments for the Series:
risk, income, capital enhancement, and protection of capital value. The adviser
will select securities believed to have potential for the production of current
income, with emphasis on securities that also have the potential for capital
enhancement. Fixed income securities are selected using a multi-sector approach.
Holdings are shifted into sectors believed by the adviser to be undervalued and
out of sectors determined by the adviser to be overvalued. The amount of Series
assets which may be invested in common stocks and fixed income securities is not
fixed. The adviser may adjust the mix of investments based upon financial market
and economic conditions.
Up to 35% of the Series' assets may be invested in "junk bonds." The actual
percentage of junk bonds held in the portfolio will be determined by the
adviser. If, in the advisor's opinion, market conditions warrant, the Series may
increase its holdings of junk bonds subject to the 35% limit. The price of junk
bonds will generally decline when interest rates rise, and increase when
interest rates fall.
The Series may invest up to 25% of its net assets in securities of foreign
(non-U.S.) issuers. The Series may invest in a broad range of foreign
securities, including equity, debt and convertible securities and foreign
government securities. Issuers may be in established market countries and
emerging market countries.
The Series also may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the
issuer at predetermined time(s), price(s) or price formula. Convertible
securities have several unique investment characteristics, such as:
[diamond] higher yields than common stocks but lower yields than comparable
nonconvertible securities;
[diamond] typically less fluctuation in value than the "underlying" common
stock, that is, the common stock that the investor receives if he
converts;
[diamond] the potential for capital appreciation if the market price of the
underlying common stock increases.
Temporary Defensive Strategy. If the adviser believes that market conditions
are not favorable to the Series' principal strategies, the Series may hold on to
its cash or invest without limit in cash equivalents, such as U.S. government
securities and high grade commercial paper. When this happens, the Series may
not achieve its investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the Series.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is reasonable income, long-term capital growth, and
conservation of capital. The value of your shares is based on the market value
of the Series' investments. However, the value of the Series' investments that
support your share value can decrease as well as increase. If between the time
you purchase shares and the time you sell shares the value of the Series'
investments decreases, you will lose money. The value of the Series' investments
can decrease for a number of reasons. For example, changing economic conditions
may cause a decline in the value of many or most investments. Particular
industries can face poor market conditions for their products or services so
that companies engaged in those businesses do not perform as well as companies
in other industries. Interest rate changes may improve prospects for certain
types of businesses and they may worsen prospects for others. Share values also
can decline if the specific companies selected for fund investment fail to
perform as the adviser expects, regardless of general economic trends, industry
trends, interest rates and other economic factors.
In the case of fixed income securities, the value of the security will be
directly affected by trends in interest rates and the overall condition of
credit markets. For example, in times of rising interest rates, the value of
these types of securities tends to decrease. When interest rates fall, the value
of these securities tends to rise. Income distribution also will affect the
Series' return. If the adviser misjudges the ability of the issuer of a
portfolio security to make scheduled interest or other income payments to the
Series, the Series' income available for distribution to shareholders may
decrease.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
HIGH RISK-HIGH YIELD SECURITIES
The Series may invest in securities that are high risk, high yield
noninvestment-grade securities. Although these securities provide greater income
and opportunity for
Phoenix Edge Series Fund 53
<PAGE>
capital appreciation than investments in higher grade securities, they also
typically entail greater price volatility and principal and interest risk. There
is a greater risk that an issuer will not be able to make principal and interest
payments on time. Analysis of the creditworthiness of issuers of below
investment grade securities may be more complex than for higher grade
securities, making it more difficult for the adviser to accurately predict risk.
FOREIGN INVESTING
The Series may invest in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards,
[diamond] generally higher commission rates on foreign portfolio transactions,
[diamond] differences and inefficiencies in transaction settlement systems,
[diamond] the possibility of expropriation or confiscatory taxation,
[diamond] adverse changes in investment or exchange control regulations,
[diamond] political instability, and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as less public information about
investments may negatively impact the Series' portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange Commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
FOREIGN CURRENCY
Portions of the Series' assets may be invested in securities denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
those securities denominated or quoted in currencies other than the U.S. dollar.
The forces of supply and demand in the foreign exchange markets determine
exchange rates and these forces are in turn affected by a range of economic,
political, financial, governmental and other factors. Exchange rate fluctuations
can affect the Series' net asset value (share price) and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the long and short terms.
Effective January 1, 1999, eleven European countries will begin converting
from their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one or more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] Known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
[diamond] Competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
[diamond] Issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
[diamond] Currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
[diamond] Potential tax consequences.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies in industries that have recently emerged due
to cultural, economic, regulatory or technological developments. Such
developments can have a significant positive or negative effect on small
capitalization companies and their stock performance. Given the limited
operating history and rapidly changing fundamental prospects, investment returns
from smaller capitalization companies can be highly volatile. Smaller companies
may find their ability to raise capital impaired by their size or lack of
operating history. Product lines are often less diversified and subject to
competitive threats. Smaller capitalization stocks are subject to varying
patterns of trading volume and may, at times, be difficult to sell.
UNRATED SECURITIES
The Series may invest in unrated securities. Unrated securities may not be
lower in quality than rated securities,
54 Phoenix Edge Series Fund
<PAGE>
but due to their perceived risk, they may not have as broad a market as rated
securities. Analysis of unrated securities is more complex than for rated
securities, making it more difficult for the adviser to accurately predict risk.
IMPACT OF THE YEAR 2000 ISSUE ON THE SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC" or "Adviser") is the investment
adviser to the Series and is located at 56 Prospect Street, Hartford, CT 06115.
PIC also acts as the investment adviser for 14 other mutual funds, as subadviser
to three mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
Series' portfolio. PIC manages the Series' assets to conform with the investment
policies as described in this prospectus. The Series pays PIC a monthly
investment management fee that is accrued daily against the value of the Series'
net assets at the following rates.
- --------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- --------------------------------------------------------------
Management 0.55% 0.50% 0.45%
Fee
- --------------------------------------------------------------
During the Series' last fiscal year, the Series paid total management fees
of $1,378,437. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .55%.
PORTFOLIO MANAGEMENT
Investment and trading decisions for the Series are made by a team of equity
professionals and a team of fixed income professionals.
IMPACT OF THE YEAR 2000 ISSUE ON THE SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to computer systems
will properly utilize dates beyond December 31, 1999. PIC management believes
that the majority of these systems are already Year 2000 compliant. PIC believes
that with modifications to existing software and conversions to new software,
the Year 2000 issue will be mitigated. It is anticipated that such modifications
and conversions will be completed on a timely basis. It is not known at this
time if there could be a material impact on the operations of PIC or its
affiliates or the Series if such modifications and conversions are not completed
timely.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-GOODWIN GROWTH SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Phoenix-Goodwin Growth Series has an investment objective of
intermediate and long-term capital appreciation, with income as a secondary
consideration. There is no guarantee that the fund will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series invests primarily in a portfolio of common stocks. Under normal
circumstances the Series intends to invest at least 65% of its total assets in
common stocks.
To select securities for Series investment, the adviser first determines
which industries, such as health care, technology, and energy, it believes have
the greatest growth potential given the adviser's future economic outlook. The
adviser will then identify the amount and proportion of assets to be invested in
each such industry. The adviser will then use quantitative and fundamental
analysis to determine which securities to buy and sell within each industry
given its asset allocation. Approximately 950 large cap stocks go through a
quantitative screening process where they are ranked on a number of factors,
including earnings acceleration, earning revisions, relative strength and
valuation. From these, the top 10% are analyzed for potential Series investment.
The adviser's analysis includes such activities as developing earnings models,
visiting companies, analyzing industry information and seeking information from
other research firms. Companies that the adviser believes are capable of
producing long-term and above-average sustainable earnings growth relative to
their cost are then selected for Series investment.
Phoenix Edge Series Fund 53
<PAGE>
Understanding the importance of a strong sell discipline, the adviser's
investment process also incorporates three separate sell indicators.
Specifically, if any holding:
[diamond] drops 15% or more in value relative to the S&P 500 Index,
[diamond] falls into the bottom 20% of their quantitative ranking, or
[diamond] reaches the adviser's target sell price,
it is reviewed by the adviser for potential sale.
The adviser selects common stocks of companies that it believes have the
potential to appreciate over both the intermediate and long terms. However,
since common stocks do not always afford the greatest promise for capital
appreciation, the Series may invest any amount of its assets in any class or
type of security believed by the adviser to offer the potential for capital
appreciation over both the intermediate and long terms, including preferred
stocks and investment grade bonds. When interest rates fall, generally the value
of bonds rises. Distribution of income, such as dividends and interest, is
incidental in the selection of investments for the Series. The adviser will
monitor portfolio securities to determine whether they are contributing to the
investment objective. Diversification among market sectors will also be a factor
in selecting securities for the Series. However, the adviser will put greater
emphasis on selecting securities which have good potential for appreciation
rather than upon wide diversification.
The Series also may invest up to 20% of its assets in convertible
securities. A convertible security is a bond, debenture, note, preferred stock
or other security that may be converted into or exchanged for a prescribed
amount of common stock of the issuer at predetermined time(s), price(s) or price
formula. Convertible securities have several unique investment characteristics,
such as:
[diamond] higher yields than common stocks but lower yields than comparable
nonconvertible securities;
[diamond] typically less fluctuation in value than the "underlying" common
stock, that is, the common stock that the investor receives if he converts;
[diamond] the potential for capital appreciation if the market price of the
underlying common stock increases.
The Series may invest up to 25% of its net assets in securities of foreign
(non-U.S.) issuers. The Series may invest in a broad range of foreign
securities, including equity, debt and convertible securities and foreign
government securities. Issuers may be in established market countries and
emerging market countries.
Temporary Defensive Strategy. If the adviser believes that market conditions
are not favorable to the Series' principal strategies, the Series may invest in
fixed income securities with or without warrants or conversion features and it
may hold on to its cash or invest without limit in cash equivalents. When this
happens, the Series may not achieve its investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the Series.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is intermediate to long-term capital appreciation. The
adviser intends to invest the Series' assets so that your shares increase in
value. However, the value of the Series' investments that support your share
value can decrease as well as increase. If between the time you purchase shares
and the time you redeem shares the value of the Series' investments decreases,
you will lose money. The value of the Series' investments can decrease for a
number of reasons. For example, changing economic conditions may cause a decline
in value of many or most investments. Particular industries can face poor market
conditions for their products or services so that companies engaged in those
businesses do not perform as well as companies in other industries. Interest
rate changes may improve prospects for certain types of businesses and they may
worsen prospects for others. To the extent that the Series' investments are
affected by general economic declines, declines in industries, and interest rate
changes that negatively affect the companies in which the Series invests, Series
share values may decline. Share values also can decline if the specific
companies selected for investment fail to perform as the adviser expects,
regardless of general economic trends, industry trends, interest rates and other
economic factors.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies in industries that have recently emerged due
to cultural, economic, regulatory or technological developments. Such
developments can have a significant positive or negative effect on small
capitalization companies and their stock performance. Given the limited
operating history and rapidly changing fundamental prospects, investment returns
from smaller capitalization companies can be highly volatile. Smaller companies
may find their ability to raise capital impaired by their size or lack of
operating history. Product lines are often less diversified and subject to
competitive threats. Smaller capitalization stocks are subject to varying
patterns of trading volume and may, at times, be difficult to sell.
56 Phoenix Edge Series Fund
<PAGE>
FOREIGN INVESTING
The Series may invest in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards
[diamond] generally higher commission rates on foreign portfolio transactions
[diamond] differences and inefficiencies in transaction settlement systems
[diamond] the possibility of expropriation or confiscatory taxation
[diamond] adverse changes in investment or exchange control regulations
[diamond] political instability
[diamond] potential restrictions on the flow of international capital
Political and economic uncertainty as well as less public information about
investments may negatively impact the Series' portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange Commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
EMERGING MARKET INVESTING
The Series may invest in companies located in emerging market countries and
regions. Investments in less-developed countries whose markets are still
emerging generally present risks in greater degree than those presented by
investment in foreign issuers based in countries with developed securities
markets and more advanced regulatory systems. Prior governmental approval of
foreign investments may be required under certain circumstances in some
developing countries, and the extent of foreign investment in domestic companies
may be subject to limitation in other developing countries. The charters of
individual companies in developing countries may impose limitations on foreign
ownership to prevent, among other concerns, violation of foreign investment
limitations.
The economies of developing countries generally are heavily dependent upon
international trade. And accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been (and may
continue to be) adversely affected by economic conditions in the countries with
which they trade.
IMPACT OF THE YEAR 2000 ISSUE ON THE SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC" or "Adviser") is the investment
adviser to the fund and is located at 56 Prospect Street, Hartford, CT 06115.
PIC also acts as the investment adviser for 14 other mutual funds, as subadviser
to three mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
Series' portfolio. PIC manages the fund's assets to conform with the investment
policies as described in this prospectus. The Series pays PIC a monthly
investment management fee that is accrued daily against the value of the fund's
net assets at the following rates.
- ---------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- ---------------------------------------------------------------
Management .70% .65% .60%
Fee
- ---------------------------------------------------------------
During the Series' last fiscal year, the Series paid total management fees
of $10,143,250. The ratio of management fees to average net assets for the
fiscal year ended December 31, 1998 was .62%.
PORTFOLIO MANAGEMENT
Investment and trading decisions for the Series are made by a team of equity
investment professionals.
Phoenix Edge Series Fund 57
<PAGE>
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the fund if such modifications and conversions are not completed timely.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the fund and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-GOODWIN MONEY MARKET SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Phoenix-Goodwin Money Market Series has an investment objective of
seeking as high a level of current income as is consistent with the preservation
of capital and maintenance of liquidity. There is no guarantee that the Series
will achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
The adviser will seek a high level of return relative to the market by
selecting securities for the Series' portfolio in anticipation of, or in
response to, changing economic conditions and money market conditions and
trends. The adviser may not purchase securities with the highest available yield
if the adviser believes that such an investment is inconsistent with the Series
objectives of preservation of capital and maintenance of liquidity.
The Series will invest in a diversified portfolio of high quality money
market instruments with maturities of 397 days or less. The average maturity of
the Series' portfolio securities, based on their dollar value, will not exceed
90 days.
The following money market instruments are the only investments the Series
will have in its portfolio at any time:
[diamond] Obligations issued or guaranteed by the U.S. government, its agencies,
authorities and instrumentalities, including U.S. Treasury
obligations, securities issued by
[bullet] the Government National Mortgage Association (GNMA),
[bullet] the Federal Home Loan Mortgage Corporation (FHLMC),
[bullet] the Federal National Mortgage Association (FNMA),
[bullet] Student Loan Marketing Association (SLMA),
[bullet] and other federal agencies;
[diamond] Obligations issued by banks and savings and loan associations,
including dollar-denominated obligations of foreign branches of U.S.
banks and U.S. branches of foreign banks, including certificates of
deposits and bankers acceptances;
[diamond] Dollar-denominated obligations guaranteed by banks or savings and loan
associations
[diamond] Federally insured obligations of other banks or savings and loan
associations
[diamond] Commercial paper
[diamond] Short-term corporate obligations
[diamond] Repurchase agreements
[bullet] A repurchase agreement is a transaction where the Series buys
a security from a seller and the seller agrees to buy that
same security back at an agreed upon date and price.
[bullet] The adviser will enter into repurchase agreements only with
those sellers that it deems creditworthy.
Investments in the Series generally will be limited to securities in the two
highest short-term rating categories with at least 95% of the Series' total
assets invested in securities in the highest rating category. Securities in the
highest rating category carry the smallest degree of investment risk.
The Series may invest more than 25% of its assets in the domestic banking
industry.
The short-term nature of money market instruments and the Series' strategies
may result in a higher turnover rate as compared to other types of funds.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is to optimize current income. The adviser intends to
select investments that provide higher returns relative to overall money market
investment returns while preserving capital and maintaining liquidity. If the
adviser misjudges the return potential of the Series'
58 Phoenix Edge Series Fund
<PAGE>
investments, the Series' returns may be lower than prevailing returns, and the
Series' income available for distribution to shareholders may be less.
Similarly, if the adviser misjudges the ability of the issuer of a portfolio
security to make scheduled interest or other income payments to the Series, the
Series' income available for distribution to shareholders may decrease. Neither
the Series nor the adviser can assure you that a particular level of income will
be consistently achieved.
The adviser intends to select investments that optimize the Series' yield
while preserving capital and maintaining liquidity. Because market conditions
and interest rates determine portfolio security yields, neither the Series nor
the adviser can assure you that the Series' yield will remain constant or that a
particular level of income will be achieved.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
INVESTMENTS NOT GUARANTEED
Unlike cash held in a bank, investments in the Series are not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
NET ASSET VALUE LESS THAN $1.00
If the net asset value drops below $1.00 per share, you could lose money.
CREDIT RATING DECREASE
A security's short-term investment rating may decline, increasing the
chances the issuer may not be able to make principal and interest payments on
time. This may reduce the Series' stream of income and decrease the Series'
yield.
REPURCHASE AGREEMENTS
If a seller of a repurchase agreement defaults and does not repurchase the
underlying securities, the Series may incur a loss if the value of the
underlying securities declines. Disposition costs may be incurred in connection
with liquidating the underlying securities. If the seller enters into
bankruptcy, the Series may never receive the purchase price or it may be delayed
or limited.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC" or "Adviser") is the investment
adviser to the Series and is located at 56 Prospect Street, Hartford, CT 06115.
PIC also acts as the investment adviser for 14 other mutual funds, as subadviser
to three mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
Series' portfolio. PIC manages the Series' assets to conform with the investment
policies as described in this prospectus. The Series pays Phoenix a monthly
investment management fee that is accrued daily against the value of the Series'
net assets at the following rates.
- -------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- -------------------------------------------------------------
Management Fee .40% .35% .30%
- -------------------------------------------------------------
During the Series' last fiscal year, the Series paid total management fees
of $564,665. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .40%.
PORTFOLIO MANAGEMENT
Julie Sapia is the portfolio manager of the Series and as such is primarily
responsible for the day-to-day management of its investments. Ms. Sapia has
served as Director, Money Market Trading of PIC since 1997 and from 1991 until
1997, served in various money market investment management positions of
increasing responsibility with PIC and Phoenix Home Life Mutual Insurance
Company. She also is Vice President of The Phoenix Series Fund, Phoenix Duff &
Phelps Institutional Mutual Funds and Phoenix-Aberdeen Series Fund and serves as
portfolio manager for certain series of each of those funds.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a
Phoenix Edge Series Fund 59
<PAGE>
timely basis. It is not known at this time if there could be a material impact
on the operations of PIC or its affiliates or the Series if such modifications
and conversions are not completed timely.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Phoenix-Goodwin Multi-Sector Fixed Income Series has an investment
objective of seeking long-term total return by investing in a diversified
portfolio mixture of high yield (high risk) and high quality fixed income
securities.
PRINCIPAL INVESTMENT STRATEGIES
The Series invests primarily in a portfolio of fixed income securities.
Under normal circumstances the Series intends to invest at least 65% of its
total assets in various sectors of the fixed income securities market.
The adviser will invest in any of several sectors of the fixed income
securities market: high yield (high risk) fixed income securities (sometimes
referred to as "junk bonds"), high quality fixed income securities, preferred
stock, convertible securities, U.S. and foreign debt obligations, certificates
of deposit, commercial paper, bankers' acceptances, and government obligations
issued or guaranteed by federal, state or municipal governments or their
agencies or instrumentalities. The Series generally will be invested in each
market sector, but the Series may invest any amount of its assets (except for
the junk bond and foreign debt limits shown below) in any one sector and may
choose not to invest in certain sectors, in order to achieve its investment
objective.
Special limits on investing are:
[diamond] No more than 35% of total assets may be invested in high yield (high
risk) securities
[diamond] No more that 50% of total asset may be invested in foreign debt
obligations
The Series also may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the
issuer at predetermined time(s), price(s) or price formula. Convertible
securities have several unique investment characteristics, such as:
[diamond] higher yields than common stocks but lower yields than comparable
nonconvertible securities
[diamond] typically less fluctuation in value than the "underlying" common
stock, that is, the common stock that the investor receives if he
converts
[diamond] the potential for capital appreciation if the market price of the
underlying common stock increases
The Series may invest up to 50% of its net assets in debt obligations of
foreign (non-U.S.) issuers. Issuers may be in established and emerging market
countries.
Temporary Defensive Strategy. If the adviser believes that market conditions
are not favorable to the Series' principal strategies, the Series may invest in
fixed income securities with or without warrants or conversion features and it
may hold on to its cash or invest without limit in cash equivalents. When this
happens, the Series may not achieve its investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the fund.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is long-term total return. The adviser intends to invest
Series assets so that your shares increase in value. However, the value of the
Series' investments that support your share value can decrease as well as
increase. If between the time you purchase shares and the time you sell shares,
the value of the Series' investments decreases, you will lose money. The value
of the Series' investments can decrease for a number of reasons. For example,
changing economic conditions may cause a decline in value of many or most
investments. Particular industries can face poor market conditions for their
products or services so that companies engaged in those businesses do not
perform as well as companies in other industries. Interest rate changes may
improve prospects for certain types of businesses and they may worsen prospects
for others. To the extent that the Series' investments are affected by general
economic declines, industry declines and interest rate changes that negatively
affect the companies in which the Series invests, Series share values may
decline. Share values also can decline if the specific companies selected for
investment fail to perform as the adviser expects, regardless of general
economic trends, industry trends, interest rates and other economic factors.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
60 Phoenix Edge Series Fund
<PAGE>
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in the debt obligations of some smaller companies.
Companies with small capitalization are often companies in industries that have
recently emerged due to cultural, economic, regulatory or technological
developments. Such developments can have a significant positive or negative
effect on small capitalization companies and their ability to repay debt. Given
the limited operating history and rapidly changing fundamental prospects,
profits of smaller capitalization companies can be highly volatile. Smaller
companies may find their ability to raise capital impaired by their size or lack
of operating history.
Product lines are often less diversified and subject to competitive threats.
FOREIGN INVESTING
The Series may invest in debt obligations of non-U.S. companies and
governments. Investing in the securities of non-U.S. companies involves special
risks and considerations not typically associated with investing in U.S.
companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards,
[diamond] generally higher commission rates on foreign portfolio transactions,
[diamond] differences and inefficiencies in transaction settlement systems,
[diamond] the possibility of expropriation or confiscatory taxation,
[diamond] adverse changes in investment or exchange control regulations,
[diamond] political instability, and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as less public information about
investments may negatively impact the Series' portfolio.
Foreign debt securities often trade with less frequency and volume than
domestic securities and therefore may exhibit greater price volatility.
Additionally, interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange Commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
FOREIGN CURRENCY
Portions of the Series' assets may be invested in securities denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
those securities denominated or quoted in currencies other than the U.S. dollar.
The forces of supply and demand in the foreign exchange markets determine
exchange rates and these forces are in turn affected by a range of economic,
political, financial, governmental and other factors. Exchange rate fluctuations
can affect the Series' net asset value (share price) and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the long and short terms.
Effective January 1, 1999, eleven European countries began converting from
their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one or more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] Known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
[diamond] Competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
[diamond] Issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
[diamond] Currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
[diamond] Potential tax consequences.
EMERGING MARKET INVESTING
The Series may invest in debt obligations of companies located in emerging
market countries and regions. Investments in less-developed countries whose
markets are still emerging generally present risks in greater degree than those
presented by investment in foreign issuers based in countries with developed
securities markets and more advanced regulatory systems. Prior governmental
approval of foreign investments may be required under certain circumstances in
some developing countries, and the extent of foreign investment in domestic
companies may be subject to limitation in other developing countries.
Phoenix Edge Series Fund 61
<PAGE>
The economies of developing countries generally are heavily dependent upon
international trade. And accordingly, have been and may continue to be adversely
affected by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been (and may
continue to be) adversely affected by economic conditions in the countries with
which they trade.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC" or "Adviser") is the investment
adviser to the Series and is located at 56 Prospect Street, Hartford, CT 06115.
PIC also acts as the investment adviser for 14 other mutual funds, as subadviser
to three mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
Series' portfolio. PIC manages the Series' assets to conform with the investment
policies as described in this prospectus. The Series pays PIC a monthly
investment management fee that is accrued daily against the value of the fund's
net assets at the following rates.
- --------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- --------------------------------------------------------------
Management 0.50% 0.45% 0.40%
Fee
- --------------------------------------------------------------
During the Series' last fiscal year, the Series paid total management fees
of $993,926. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .50%.
PORTFOLIO MANAGEMENT
Investment and trading decisions for the Series are made by a team of fixed
income investment professionals.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the Series if such modifications and conversions are not completed timely.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Phoenix-Goodwin Strategic Allocation Series has an investment objective
of as high a total rate of return as is considered consistent with prudent
investment risk. There is no guarantee that the Series will achieve its
investment objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series will invests in the common stock, bond and money market segments
in the proportion determined by the adviser.
The adviser may invest 0-100% in any one market segment.
The adviser will adjust the mix of investments among the three market
segments to capitalize on perceived variations in potential returns as economic
and financial conditions change.
Investments in one of the three market segments will be made with a specific
purpose in mind. Investments in the stock segment will be for the purpose of
attempting to achieve a superior total rate of return over an extended period of
time from both capital appreciation and current income. Investments in the bond
segment will be for the
62 Phoenix Edge Series Fund
<PAGE>
purpose of attempting to achieve as high a total rate of return on a annual
basis as is considered consistent with the preservation of capital values and
may include investments of up to 5% of the Series' total assets in high risk
fixed income securities (commonly referred to as "junk bonds"). Investments in
the money market segment will be for the purpose of attempting to achieve high
current income, the preservation of capital, and liquidity. The types of
securities in each of these three market segments in which the Allocation Series
will invest are listed in the Statement of Additional Information.
In order to achieve the Series investment objective, the timing and amounts
of purchases and sales of particular securities and particular types of
securities (i.e., common stock, debt, money market) will be of significance. The
Series intends to use trading as a means of managing the portfolio to achieve
its investment objective. Trading is used primarily in anticipation of, or in
response to, market developments or to take advantage of yield disparities.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is high income, long term capital growth, and conservation
of capital. The value of your shares is based on the market value of the Series'
investments. However, the value of the Series' investments that support your
share value can decrease as well as increase. If between the time you purchase
shares and the time you sell shares the value of the Series' investments
decreases, you will lose money. The value of the Series' investments can
decrease for a number of reasons. For example, changing economic conditions may
cause a decline in the value of many or most investments. Particular industries
can face poor markets conditions for their products or services so that
companies engaged in those businesses do not perform as well as companies in
other industries. Interest rate changes may improve prospects for certain types
of businesses and they may worsen prospects for others. Share values also can
decline if the specific companies selected for Series investments fail to
perform as the adviser expects, regardless of general economic trends, industry
trends, interest rates and other economic factors.
In the case of fixed income securities, the value of the security will be
directly affected by trends in interest rates and the overall condition of
credit markets. For example, in times of rising interest rates, the value of
these types of securities tends to decrease. When interest rates fall, the value
of these securities tends to rise. Income distribution also will affect the
Series' return. If the adviser misjudges the ability of the issuer of a
portfolio security to make scheduled interest or other income payments to the
Series, the Series' income available for distribution to shareholders may
decrease.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
Implementation of this strategy requires the ability of the adviser to
accurately anticipate which market segment to emphasize or avoid. If the adviser
is wrong, significant losses can be experienced.
The Adviser will engage in trading when it believes that the trade, net of
transaction costs, will improve interest income of capital appreciation
potential, or will lessen capital loss potential. Whether these goals will be
achieved through trading depends on the Adviser's ability to evaluate particular
securities and anticipate relevant market factors, including interest rate
trends and variations. Such trading places a premium on the Adviser's ability to
obtain relevant information, evaluate it properly and take advantage of its
evaluations by completing transactions on a favorable basis. If the Adviser's
evaluations and expectations prove to be incorrect, the Series' income or
capital appreciation may be reduced and its capital losses may be increased.
Portfolio trading involves transaction costs.
HIGH RISK-HIGH YIELD SECURITIES
The Series may invest in securities that are high risks, high yield
noninvestment grade securities. Although these securities provide greater income
and opportunity for capital appreciation then investments in higher grade
securities, they also typically entail greater price volatility and principal
and interest risk. There is a greater risk that an issuer will not be able to
make principal and interest payments on time. Analysis of the creditworthiness
of issuers of below investments grade securities may be more complex then for
higher grade securities, making it more difficult for the adviser to accurately
predict risk.
FOREIGN INVESTING
The Series may invest in non-U.S., companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards,
[diamond] generally higher commission rates on foreign portfolio transactions,
[diamond] differences and inefficiencies in transaction settlement systems,
[diamond] the possibility of expropriation or confiscatory taxation,
[diamond] adverse changes in investment or exchange control regulations,
[diamond] political instability,
Phoenix Edge Series Fund 63
<PAGE>
[diamond] potential restrictions on the flow of international capital, and
[diamond] potential tax consequences.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies in industries that have recently emerged due
to cultural, economic, regulatory or technological developments. Such
developments can have a significant positive or negative effect on small
capitalization companies and their stock performance. Given the limited
operation history and rapidly changing fundamental prospects, investment returns
from smaller capitalization companies can be highly volatile. Smaller companies
may find their ability to raise capital impaired by their size or lack of
operating history. Product lines are often less diversified and subject to
competitive threats. Smaller capitalization stocks are subject to varying
patterns of trading volume and may, at times, be difficult to sell.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to the
Series and is located at 56 Prospect Street, Hartford, CT 06115. PIC also acts
as the investment adviser for 14 other mutual funds, as subadviser to three
additional mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
Series' portfolio. PIC manages the Series' assets to conform with the investment
policies as described in this prospectus. The fund pays PIC a monthly investment
management fee that is accrued daily against the value of the fund's net assets
at the following rates.
- -------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- -------------------------------------------------------------
Management 0.60% 0.55% 0.50%
Fee
- -------------------------------------------------------------
During the Series' last fiscal year, the Series paid total management fees
of $2,567,526. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .58%.
PORTFOLIO MANAGEMENT
Investment decisions for the Allocation Series are made by a team of equity
investment professionals and a team of fixed income investment professionals.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the Series if such modifications and conversions are not timely completed.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-GOODWIN STRATEGIC THEME SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Phoenix-Goodwin Strategic Theme Series has an investment objective to
seek long-term capital appreciation through investing in securities of companies
benefiting from long-term trends in the United States and abroad. There is no
guarantee that the Series will achieve its investment objective.
64 Phoenix Edge Series Fund
<PAGE>
PRINCIPAL INVESTMENT STRATEGIES
The Series will invest primarily in common stocks of companies the adviser
believes are particularly well situated to benefit from cultural, demographic,
regulatory, social or technological changes worldwide.
Examples of thematic investing would include investing in oil and gas
exploration companies during the "energy shortage' years of the late 1970's,
owning companies benefiting from the lower inflation trends during the early
1980's, investing in companies acquiring cellular franchises in the late 1980's
and technology companies during the 1990's.
The Series will not invest more than 25% of its total assets in any one
industry or group of related industries.
In determining when and whether to invest in particular industries, the
Adviser will establish strategic (major changes affecting markets for prolonged
periods) and tactical (focused, short-term) investment themes. Investment themes
shall generally reflect trends which appear likely to drive stocks with similar
technologies and products or which embody broad social, economic, political and
technological considerations; offer substantial appreciation potential; present
a visionary idea or creative solution; and exhibit some independence from
economic cycles. The Adviser may change investment themes once it has determined
that an investment theme has become saturated or fully exploited. The Adviser
may pursue one or more investment themes at any time.
The Adviser will seek to identify companies which, in addition to being
considered well positioned to benefit from investment themes identified, also
are believed to possess attributes such as good financial resources,
satisfactory return on capital, enhanced industry position and superior
management skills.
The Series also may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the
issuer at predetermined time(s), price(s) or price formula. A convertible
security entitles the owner to receive interest paid or accrued on a debt
security or dividends paid on preferred stock until the security matures or is
converted to common stock. Convertible securities have several unique investment
characteristics, such as:
[diamond] higher yields than common stocks but lower yields than comparable
nonconvertible securities;
[diamond] typically less fluctuation in value than the "underlying" common
stock, that is, the common stock that the investor receives if he
converts;
[diamond] the potential for capital appreciation if the market price of the
underlying common stock increases.
The Series will invest only in the four highest rating categories of
convertible securities, commonly called "investment grade" securities. If the
Series purchases an investment grade security that loses its investment grade
rating the Series is not required to sell the security. Ratings are established
by nationally recognized statistical rating agencies. Please see the Statement
of Additional Information for a detailed list of rating categories.
The Series may invest up to 35% of its net assets in securities of foreign
(non-U.S.) issuers. The Series may invest in a broad range of foreign
securities, including equity, debt and convertible securities and foreign
government securities. Issuers may be in established market countries and
emerging market countries.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' primary focus is long-term capital appreciation. The adviser
intends to invest Series assets so that your shares increase in value. However,
the value of the Series' investments that support your share value can decrease
as well as increase. If between the time you purchase shares and the time you
sell shares the value of the Series' investments decreases you will lose money.
The value of the fund's investments can decrease for a number of reasons. For
example, changing economic conditions may cause a decline in the value of many
or even most equity and fixed income investments. Particular industries can face
poor markets for their products or services so that companies engaged in those
businesses do not do as well as companies in other industries. Interest rate
changes may improve prospects for certain types of businesses and they may
worsen prospects for others. To the extent that the Series' investments are
affected by general economic declines, declines in industries, and interest rate
changes that negatively affect the companies in which the Series invests, Series
share values may decline. Share values also can decline if the specific
companies selected for Series investment fail to perform as the adviser expects,
regardless of general economic trends, industry trends, interest rates and other
economic factors.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
To the extent the Series invests in a single investment theme, it may be
more vulnerable to adverse economic, political or regulatory developments than
would be the case if it invested in a broader spectrum of themes, or as compared
to a broadly diversified portfolio.
The successful implementation of the thematic investment strategy used by
the adviser is dependent on the adviser's ability to
[diamond] anticipate emerging market trends, and;
Phoenix Edge Series Fund 65
<PAGE>
[diamond] exploit such investment opportunities and
[diamond] divest such securities at the right time.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies with a limited operating history or companies
in industries that have recently emerged due to cultural, economic, regulatory
or technological developments. Such developments can have a significant positive
or negative effect on small capitalization companies and their stock
performance. Given the limited operating history and rapidly changing
fundamental prospects, investment returns from smaller capitalization companies
can be highly volatile. Smaller companies may find their ability to raise
capital impaired by their size or lack of operating history. Product lines are
often less diversified and subject to competitive threats. Smaller
capitalization stocks are subject to varying patterns of trading volume and may,
at times, be difficult to sell.
FOREIGN INVESTING
The Series may invest in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards,
[diamond] generally higher commission rates on foreign portfolio transactions,
[diamond] differences and inefficiencies in transaction settlement systems,
[diamond] the possibility of expropriation or confiscatory taxation,
[diamond] adverse changes in investment or exchange control regulations,
[diamond] political instability, and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as relatively less public
information about investments may negatively impact the fund's portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange Commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
FOREIGN INVESTING
Portions of the Series' assets may be invested in securities denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
those securities denominated or quoted in currencies other than the U.S. dollar.
The forces of supply and demand in the foreign exchange markets determine
exchange rates and these forces are in turn affected by a range of economic,
political, financial, governmental and other factors. Exchange rate fluctuations
can affect the Series' net asset value (share price) and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the short and long terms.
Effective January 1, 1999, eleven European countries began converting from
their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one or more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] Known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
[diamond] Competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
[diamond] Issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
[diamond] Currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
[diamond] Potential tax consequences.
The Series may buy and write options and enter into futures contracts and
swap agreements primarily to minimize the risk of other investments it makes for
the Series. These investments may not protect the Series from losses, they may
decrease overall return, and they could, in unusual circumstances, expose the
Series to losses that could be unlimited.
66 Phoenix Edge Series Fund
<PAGE>
If the adviser believes that market conditions are not favorable to the
Series' principal strategies the Series may invest without limit in U.S.
government securities and in money market instruments. When this happens, the
Series may not achieve its investment objective.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to the
Series and is located at 56 Prospect Street, Hartford, CT 06115. PIC also acts
as the investment adviser for 14 other mutual funds, as subadviser to three
additional mutual funds and as adviser to institutional clients. As of December
31, 1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
domestic portion of the Series' portfolio. PIC manages the Series' assets to
conform with the investment policies as described in this prospectus. The Series
pays PIC a monthly investment management fee that is accrued daily against the
value of the Series' net assets at the following rates.
- --------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- --------------------------------------------------------------
Management Fee .75% .70% .65%
- --------------------------------------------------------------
During the Series' last fiscal year, the Series paid total management fees
of $426,848. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .75%.
PORTFOLIO MANAGEMENT
Investment decisions for the Phoenix-Goodwin Strategic Theme Series are made
by a team of equity investment professionals.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES' OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the Series if such modifications and conversions are not timely completed.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-HOLLISTER VALUE EQUITY SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Series has a primary investment objectives to seek long-term capital
appreciation. The Series has a secondary investment objective to seek current
income. There is no guarantee that the Series will achieve either objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series invests in a diversified portfolio of securities of primarily
domestic (U.S.) companies. Generally the Series will invest in securities traded
on the New York Stock Exchange, the American Stock Exchange and in
over-the-counter markets. The Series is designed to invest in common stocks that
meet the adviser's quantitative standards that indicate above average financial
soundness and intrinsic value relative to price. Under normal circumstances the
Series will invest at least 65% of its total assets in common stocks.
The adviser applies a security selection process that chooses stocks that
meet certain investment criteria relating to price, dividend yield, going
concern value and debt levels. The adviser considers approximately 2,500
companies, but only a few hundred meet one or more of the adviser's criteria for
selection. For those that do, the adviser projects growth in earnings and
dividends, earnings momentum and undervaluation based on a dividend discount
model. From this analysis the adviser develops target prices and value ranges
and selects the top-rated securities for purchase. While the adviser's strategy
tends to concentrate its investment selections in larger issuers, the Series may
invest in securities of issuers of any size.
Phoenix Edge Series Fund 67
<PAGE>
Generally the adviser sells a Series security when its target price is reached,
when the company or its industry suffers negative changes, or when there is a
significant change in the investment criteria that prompted the adviser to
purchase the security. The adviser may choose to continue to hold a security
that it believes suitable for the Series' objectives even if it no longer meets
these criteria.
The Series also may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the
issuer at predetermined time(s), price(s) or price formula. A convertible
security entitles the owner to receive interest paid or accrued on a debt
security or dividends paid on preferred stock until the security matures or is
converted to common stock. Convertible securities have several unique investment
characteristics, such as:
[diamond] higher yields than common stocks but lower yields than comparable
nonconvertible securities;
[diamond] typically less fluctuation in value than the "underlying" common
stock, that is, the common stock that the investor receives if he
converts;
[diamond] the potential for capital appreciation if the market price of the
underlying common stock increases.
The Series will invest only in the four highest rating categories of
convertible securities, commonly called "investment grade" securities. If the
Series purchases an investment grade security that loses its investment grade
rating, the Series is not required to sell the security. Ratings are established
by nationally recognized statistical rating agencies. Please see the Statement
of Additional Information for a detailed list of rating categories.
The Series may increase ownership of securities by borrowing from banks at
fixed interest rates and investing the proceeds in stocks or other investments
that are consistent with these investment techniques. Purchasing additional
securities with borrowed funds can increase the net asset value of the Series
more quickly. Total borrowing cannot exceed 33% of the Series' net assets, which
means that after any borrowing the value of the Series' assets (including the
amount borrowed) must be at least three times the total amount borrowed for
investment purposes. If the value of the Series' assets decreases so that the
ratio becomes less than three to one, the Series must reduce its outstanding
loan within three business days to bring the ratio back to three to one.
The Series may lend portfolio securities to broker-dealers and other
financial institutions to increase its investment returns. The total amount of
such lending can be as much as one-third of the Series' total assets. When the
Series lends securities in this fashion, the borrower returns the securities at
a prearranged time and pays some form of premium or other fee for the
transaction. The Series receives all dividends and other distributions made with
respect to the loaned securities. All securities loans are secured by other
marketable securities.
The Series may invest up to 30% of its total assets in securities of foreign
(non-U.S.) issuers.
Temporary Defensive Strategy. If the adviser believes that market conditions
are not favorable to the Series' principal strategies, the Series may invest
without limit in U.S. government securities and in money market instruments.
When this happens, the Series may not achieve its investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' primary focus is long-term capital appreciation. Its secondary
objective is current income. The adviser intends to invest Series' assets so
that your shares increase in value and so that your shares earn current income
through dividends, interest or other current distributions. However, the value
of the Series' investments that support your share value can decrease as well as
increase. If between the time you purchase shares and the time you sell shares
the value of the Series' investments decreases you will lose money. The value of
the Series' investments can decrease for a number of reasons. For example,
changing economic conditions may cause a decline in the value of many or even
most equity and fixed income investments. Particular industries can face poor
markets for their products or services so that companies engaged in those
businesses do not do as well as companies in other industries. Interest rate
changes may improve prospects for certain types of businesses and they may
worsen prospects for others. To the extent that the Series' investments are
affected by general economic declines, declines in industries, and interest rate
changes that negatively affect the companies in which the Series invests,
Series' share values may decline. Share values also can decline if the specific
companies selected for Series' investment fail to perform as the adviser
expects, regardless of general economic trends, industry trends, interest rates
and other economic factors. When companies owned by the Series encounter
negative conditions they may be unable to continue to pay dividends or interest
at expected levels.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies with a limited operating history or companies
in industries that have recently emerged due to cultural, economic,
68 Phoenix Edge Series Fund
<PAGE>
regulatory or technological developments. Such developments can have a
significant positive or negative effect on small capitalization companies and
their stock performance. Given the limited operating history and rapidly
changing fundamental prospects, investment returns from smaller capitalization
companies can be highly volatile. Smaller companies may find their ability to
raise capital impaired by their size or lack of operating history. Product lines
are often less diversified and subject to competitive threats. Smaller
capitalization stocks are subject to varying patterns of trading volume and may,
at times, be difficult to sell.
LEVERAGE
If the Series borrows money to make additional investments it must pay
interest on the borrowed funds. The interest paid will decrease the Series' net
investment income. The adviser may borrow funds to make additional investments
expecting that those investments will increase in value sufficient to cover
borrowing costs and produce additional gain for the Series. If those investments
decrease in value or do not increase in value sufficient to cover borrowing
costs the Series will suffer greater losses than would take place if no
borrowing took place. In addition, because the Series must maintain a
three-to-one ratio of net assets to debt, in a declining market it may have to
sell securities under poor market conditions to maintain the required ratio.
SECURITIES LENDING
When the Series lends portfolio securities it runs the risk that the
borrower will be unable or unwilling to return the securities and the agreed fee
or premium. The value of the collateral taken as security for the securities
loaned may decline in value or may be difficult to convert to cash in the event
that the Series must rely on the collateral to recover the value of its
securities. In these circumstances the Series will suffer losses.
FOREIGN INVESTING
The Series may invest in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards,
[diamond] generally higher commission rates on foreign portfolio transactions,
[diamond] differences and inefficiencies in transaction settlement systems,
[diamond] the possibility of expropriation or confiscatory taxation,
[diamond] adverse changes in investment or exchange control regulations,
[diamond] political instability, and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as less public information about
investments may negatively impact the Series' portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange Commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
FOREIGN CURRENCY
Portions of the Series' assets may be invested in securities denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
those securities denominated or quoted in currencies other than the U.S. dollar.
The forces of supply and demand in the foreign exchange markets determine
exchange rates and these forces are in turn affected by a range of economic,
political, financial, governmental and other factors. Exchange rate fluctuations
can affect the Series' net asset value (share price) and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the short and long terms.
Effective January 1, 1999, eleven European countries began converting from
their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one or more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
[diamond] competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
Phoenix Edge Series Fund 69
<PAGE>
[diamond] issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
[diamond] currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
[diamond] potential tax consequences.
The adviser does not expect to invest in any securities that may be
adversely effected by the conversion to the Euro.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC" or "Adviser") is the investment
adviser to the Series and is located at 56 Prospect Street, Hartford, CT 06115.
PIC also acts as the investment adviser for 14 mutual funds, as subadviser to
three mutual funds and as adviser to institutional clients. As of December 31,
1998, PIC had $23.9 billion in assets under management. PIC has acted as an
investment adviser for over sixty years.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
portfolio. PIC manages the Series' assets to conform with the investment
policies as described in this prospectus. The Series pays PIC a monthly
investment management fee that is accrued daily against the value of the Series'
net assets at the following rates.
- ----------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- ----------------------------------------------------------------
Phoenix-Hollister
Value Equity 0.70% 0.65% 0.60%
Series
- ----------------------------------------------------------------
PIC has voluntarily agreed to assume total Series' operating expenses
excluding interest, taxes, brokerage fees, commissions and extraordinary
expenses, until December 31, 1999, to the extent that such expenses exceed 0.15%
of the Series' average annual net asset values.
During the Series' last fiscal year, the Series paid total management fees
of $30,941. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .70%. The advisory fee is greater than that for
most Series; however, the Trustees have determined that it is comparable to fees
charged by other Series whose investment objectives are similar to those of the
Series.
PORTFOLIO MANAGEMENT
Mr. Christian C. Bertelsen serves as Portfolio Manager of the
Phoenix-Hollister Value Equity Series, and as such is primarily responsible for
the day-to-day management of the Series' investments. Mr. Bertelsen joined
Phoenix Investment Counsel, Inc. in July 1997. Previously, from 1996 to July
1997, Mr. Bertelsen was employed by Dreman Value Advisors where he served as
chief investment officer and portfolio manager of the Kemper-Dreman Contrarian
and Small Cap Value Funds. From 1993 to 1996, Mr. Bertelsen was a Senior Vice
President of Eagle Asset Management where he managed private and institutional
assets, as well as the Heritage Value Equity Fund.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the Series if such modifications and conversions are not timely completed.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
70 Phoenix Edge Series Fund
<PAGE>
PHOENIX-OAKHURST GROWTH AND INCOME SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Series has an investment objective of seeking dividend growth, current
income and capital appreciation. There is no guarantee that the Series will
achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series invests in a diversified portfolio of securities of primarily
domestic (U.S.) companies. The Series is designed to invest in equity
securities. Under normal circumstances,
[diamond] the Series intends to invest solely in equity securities and will
invest at least 65% of its total assets in equity securities,
[diamond] the Series will invest primarily in common stocks, and
[diamond] the Series intends to be "fully invested" and will attempt to limit
its holdings of cash and short-term investments to not more than 2% of
its assets.
The adviser uses a quantitative value strategy to pursue its investment
objective. Quantitative value involves selecting securities primarily from the
equity securities of the 1,500 largest companies traded in the United States,
based on market capitalization. The adviser seeks a desired balance of risk and
return potential, including a targeted yield exceeding the yield of the S&P 500.
This strategy seeks securities of companies that are undervalued relative to the
market in general and that have improving fundamentals. While the adviser's
strategy tends to concentrate its investment selections in larger issuers, the
Series may invest in securities of issuers of any size.
The Series also may invest in other equity securities, including preferred
stocks, preferred stocks convertible into common stocks, fixed income securities
convertible into common stocks, warrants and rights to purchase common stock.
Convertible securities have several unique investment characteristics, such as:
[diamond] higher yields than common stocks but lower yields than comparable
nonconvertible securities;
[diamond] typically less fluctuation in value than the "underlying" common
stock, that is, the common stock that the investor receives if he
converts;
[diamond] the potential for capital appreciation if the market price of the
underlying common stock increases.
The Series will invest only in the four highest rating categories of
convertible securities, commonly called "investment grade" securities. If the
Series purchases an investment grade security that loses its investment grade
rating the Series is not required to sell the security. Ratings are established
by nationally recognized statistical rating agencies. Please see the Statement
of Additional Information for a detailed list of rating categories.
The Series may lend portfolio securities to broker-dealers and other
financial institutions to increase its investment returns. The total amount of
such lending can be as much as one-third of the Series' total assets. When the
Series lends securities in this fashion, the borrower returns the securities at
a pre-arranged time and pays some form of premium or other fee for the
transaction. The Series receives all dividends and other distributions made with
respect to the loaned securities. All securities loans are secured by other
marketable securities.
The Series may invest up to 20% of its total assets in securities of foreign
(non-U.S.) issuers. However, under normal circumstances the Series will not
invest more than 10% of its total assets in securities of foreign issuers.
Temporary Defensive Strategy. If the adviser or subadviser believes that
market conditions are not favorable to the Series' principal strategies, the
Series may invest without limit in U.S. government securities and in money
market instruments. When this happens, the Series may not achieve its investment
objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is dividend growth, current income and capital
appreciation. The adviser intends to invest Series assets so that the Series'
total return and dividend yield exceed average total return and dividend yield
for companies included in the S&P 500. In this sense the Series seeks to
outperform the S&P 500. The S&P 500 can have negative returns, however. When
that happens, the Series may outperform the S&P 500 but still have negative
returns. The value of the Series' investments, as well as the value of stocks
included in the S&P 500, can decrease for a number of reasons. For example,
changing economic conditions may cause a decline in value of many or even most
equity and fixed income investments. Particular industries can face poor markets
for their products or services so that companies engaged in those businesses do
not do as well as companies in other industries. Interest rate changes may
improve prospects for certain types of businesses and they may worsen prospects
for others. To the extent that the Series' investments are affected by general
economic declines, declines in industries, and interest rate changes that
negatively affect the companies in which the Series invests, Series' share
values may decline. Share values also can decline, or can fail to perform as
well as stocks included in the S&P 500 if the specific companies the adviser
selects for the Series fail to perform as the adviser expects, regardless of
general
Phoenix Edge Series Fund 71
<PAGE>
economic trends, industry trends, interest rates and other economic factors.
The adviser intends to keep cash and short-term investments below 2% of the
Series' assets under normal circumstances. By keeping the Series' assets "fully
invested" the adviser intends to maximize the Series' opportunity to increase
its net asset value. However, being "fully invested" in common stocks and other
securities the Series' net asset value will decrease if the value of those
investments decreases.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies with limited operating history or companies
in industries that have recently emerged due to cultural, economic, regulatory
or technological developments. Such developments can have a significant positive
or negative effect on small capitalization companies and their stock
performance. Given the limited operating history and rapidly changing
fundamental prospects, investment returns from smaller capitalization companies
can be highly volatile. Smaller companies may find their ability to raise
capital impaired by their size or lack of operating history. Product lines are
often less diversified and subject to competitive threats. Smaller
capitalization stocks are subject to varying patterns of trading volume and may,
at times, be difficult to sell.
SECURITIES LENDING
When the Series lends portfolio securities it runs the risk that the
borrower will be unable or unwilling to return the securities and the agreed fee
or premium. The value of the collateral taken as security for the securities
loaned may decline in value or may be difficult to convert to cash in the event
that the Series must rely on the collateral to recover the value of its
securities. In these circumstances the Series will suffer losses.
FOREIGN INVESTING
The Series may invest in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards,
[diamond] generally higher commission rates on foreign portfolio transactions,
[diamond] differences and inefficiencies in transaction settlement systems,
[diamond] the possibility of expropriation or confiscatory taxation,
[diamond] adverse changes in investment or exchange control regulations,
[diamond] political instability, and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as less public information about
investments may negatively impact the Series' portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the SEC. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payment positions.
FOREIGN CURRENCY
Portions of the Series' assets may be invested in securities denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
those securities denominated or quoted in currencies other than the U.S. dollar.
The forces of supply and demand in the foreign exchange markets determine
exchange rates and these forces are in turn affected by a range of economic,
political, financial, governmental and other factors. Exchange rate fluctuations
can affect the Series' net asset value (share price) and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the short and long terms.
Effective January 1, 1999, eleven European countries began converting from
their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one of more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
72 Phoenix Edge Series Fund
<PAGE>
[diamond] competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
[diamond] issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including cost
of dual currency operations through January 1, 2002);
[diamond] currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
[diamond] potential tax consequences.
The adviser does not expect to invest in any securities that may be
adversely effected by the conversion to the Euro.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC" or "Adviser")
is the investment adviser to the Series and is located at 56 Prospect Street,
Hartford, CT 06115. PIC also acts as the investment adviser for 14 other mutual
funds, as subadviser to three mutual funds and as adviser to institutional
clients. As of December 31, 1998, PIC had $23.9 billion in assets under
management. PIC has acted as an investment adviser for over sixty years.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
Series' portfolio. PIC manages the Series' assets to conform with the investment
policies as described in this prospectus. The fund pays PIC a monthly investment
management fee that is accrued daily against the value of the Series' net assets
at the following rates.
- --------------------------------------------------------------
FIRST NEXT OVER
$250,000,000 $250,000,000 $500,000,000
- --------------------------------------------------------------
Management 0.70% 0.65% 0.60%
Fee
- --------------------------------------------------------------
The adviser has voluntarily agreed until December 31, 1999, to reimburse the
Series for the amount, if any, by which the Series' operating expenses other
than the management fee for any fiscal years exceed 0.15% of the average net
assets of the Series.
During the Series' last fiscal year, the fund paid total management fees of
$109,232. The ratio of management fees to average net assets for the fiscal year
ended December 31, 1998 was .70%.
PORTFOLIO MANAGEMENT
Steven L. Colton serves as portfolio manager and as such is primarily
responsible for the day-to-day operation of the fund. Mr. Colton joined Phoenix
Investment Counsel, Inc. in June 1997. Previously, Mr. Colton was Portfolio
Manager for the American Century Income & Growth Fund ("ACIGF") from its
inception on December 17, 1990 through May 30, 1997. Dong Zhang serves as a
member of the team that manages Phoenix Growth and Income Fund. Mr. Zhang also
was a member of the portfolio management team for ACIGF from June 1996 through
June 4, 1997.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES OPERATIONS
The Trustees have directed management to ensure that the systems used by
service providers (PIC, Duff & Phelps and their affiliates) in support of the
Series' operations be assessed and brought into Year 2000 compliance. Based upon
preliminary assessments, PIC has determined that it will be required to modify
or replace portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. PIC management believes that the
majority of these systems are already Year 2000 compliant. PIC believes that
with modifications to existing software and conversions to new software, the
Year 2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the fund if such modifications and conversions are not completed timely.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
Phoenix Edge Series Fund 73
<PAGE>
PHOENIX-SCHAFER MID-CAP VALUE SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
Phoenix-Schafer Mid-Cap Value Series has an investment objective of
long-term capital appreciation. Current income is a secondary investment
objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series will invest in securities the adviser believes offer the
possibility of increase in value. The adviser will choose from securities which
satisfy three basic criteria:
[diamond] established companies having a strong financial position;
[diamond] price/earnings ratio below major market indices, such as the S&P 500;
and
[diamond] prospective earnings and dividend growth rates above average rates for
major market indices.
Once a security is purchased the Series will generally hold it until it no
longer meets the financial or valuation criteria.
The Series also may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the
issuer at predetermined time(s), price(s) or price formula. A convertible
security entitles the owner to receive interest paid or accrued on a debt
security or dividends paid on preferred stock until the security matures or is
converted to common stock. Convertible securities have several unique
investments characteristics, such as:
[diamond] higher yields than common stocks but lower than comparable
nonconvertible securities;
[diamond] typically less fluctuation in value than the "underlying" common
stock, that is, the common stock that the investor receives if he
converts;
[diamond] the potential for capital appreciation if the market price of the
underlying common stock increases.
The Series may invest up to 20% of its net assets in securities of foreign
(non-U.S.) issuers. The Series may invest in a broad range of foreign
securities, including equity, debt and convertible securities and foreign
government securities. Issuers may be in established market countries and
emerging market countries.
If the adviser is unable to identify attractive equity investments
consistent with the Series' principal strategies, the Series may hold on to cash
or invest without limit in cash equivalents, such as U.S. government securities
and high grade commercial paper. When this happens, the fund may not achieve its
investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the fund.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is long-term capital appreciation. The adviser intends to
invest Series assets so that your shares increase in value. However, the value
of the Series' investments that support your share value can decrease as well as
increase. If between the time you purchase shares and the time you sell shares
the value of the Series' investments decreases you will lose money. The value of
the Series' investments can decrease for a number of reasons. For example,
changing economic conditions may cause a decline in value of many or even most
equity and fixed income investments. Particular industries can face poor markets
for their products or services so that companies engaged in those businesses do
not do as well as companies in other industries. Interest rate changes may
improve prospects for certain types of businesses and they many worsen prospects
for others. To the extent that the Series' investments are affected by general
economic declines, declines in industries, and interest rate changes that
negatively affect the companies in which the Series invests, Series share values
may decline. Share values also can decline if the specific companies selected
for Series investment fail to perform as the adviser expects, regardless of
general economic trends, industry trends, interest rates and other economic
factors.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies in industries that have recently emerged due
to cultural, economic, regulatory or technological developments. Such
developments can have a significant positive or negative effect on small
capitalization companies and their stock performance. Given the limited
operating history and rapidly changing fundamental prospects, investment returns
from smaller capitalization companies can be highly volatile. Smaller companies
may find their ability to raise capital impaired by their size or lack of
operating history. Product lines are often less diversified and subject to
competitive threats. Smaller capitalization stocks are subject to varying
patterns of trading volume and may, at times, be difficult to sell.
FOREIGN INVESTING
The Series may invest in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
74 Phoenix Edge Series Fund
<PAGE>
[diamond] differences in accounting, auditing and financial reporting standards;
[diamond] generally higher commission rates on foreign portfolio transactions;
[diamond] differences and inefficiencies in transaction settlement systems;
[diamond] the possibility of expropriation or confiscatory taxation;
[diamond] adverse changes in investment or exchange control regulations;
[diamond] political instability; and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as less public information about
investments may negatively impact the fund's portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series.
Many of the foreign securities held by the Series will not be registered
with, nor will the issuers of those securities be subject to the reporting
requirements of, the U.S. Securities and Exchange Commission. Accordingly, there
may be less publicly available information about the securities and about the
foreign company or government issuing them than is available about a domestic
company or government entity. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions.
FOREIGN CURRENCY
Portions of the Series' assets may be invested in securities denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
those securities denominated or quoted in currencies other than the U.S. dollar.
The forces of supply and demand in the foreign exchange markets determine
exchange rates and these forces are in turn affected by a range of economic,
political, financial, governmental and other factors. Exchange rate fluctuations
can affect the Series' net asset value (share price) and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the long and short terms.
Effective January 1, 1999, eleven European countries began converting from
their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one or more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] Known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues, expenses
or income from its operations;
[diamond] Competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
[diamond] Issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
[diamond] Currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
[diamond] Potential tax consequences.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE SERIES
THE ADVISER
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to the
Series and is located at 56 Prospect Street, Hartford, CT 06115. PIC also acts
as the investment adviser for 14 mutual funds, as subadviser to three mutual
funds and as adviser to institutional clients. As of December 31, 1998, PIC had
$23.9 billion in assets under management. PIC has acted as an investment adviser
for over sixty years.
THE SUBADVISER
Schafer Capital Management, Inc. ("Schafer") serves as subadviser to the
Series. Schafer's principal place of business is located at 101 Carnegie Center,
Suite 107, Princeton, New Jersey. Schafer has been engaged in the investment
management business since 1981, specializing in long-term investing in the
equity markets. As of December 31, 1998, Schafer had approximately $1.7 billion
in assets under management.
Phoenix Edge Series Fund 75
<PAGE>
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the day-to-day management of the
Series' portfolio. PIC manages the Series' assets to conform with the investment
policies as described in this prospectus. The Series pays PIC a monthly
investment management fee that is accrued daily against the value of that
Series' net assets at the rate of 1.05% annually.
The total advisory fees of 1.05% of the aggregate net assets of the Series
is greater than that paid by most funds; however, the Board of Trustees of the
Series has determined that it is similar to fees charged by other mutual funds
whose investment objectives are similar to those of the Series.
During the Series' last fiscal year, the Series paid total management fees
of $46,644. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was 1.05%.
PORTFOLIO MANAGEMENT
Mr. David K. Schafer is the portfolio manager for the Phoenix-Schafer
Mid-Cap Value Series and, as such, is primarily responsible for the day-to-day
management of the Series' portfolio. Mr. Schafer has been in the investment
management business for more than twenty-five years. Mr. Schafer is the
president of Schafer Capital Management, Inc. and is also portfolio manager for
the Strong Schafer Value Fund. Mr. Schafer was a securities analyst, first for
Arnold Bernhard & Co., Inc., publisher of The Value Line Investment Survey, from
June 1966 to June 1968; for J & W Seligman & Co. from June 1968 to December
1970; and for Fariston Management Corp., from January 1971 to November 1972, he
joined the treasury department of INCO Ltd. to supervise that company's pension
assets, and in 1974 he began managing a portion of those assets himself. In
1981, Mr. Schafer left INCO Ltd. to found Schafer Capital Management.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Trustees have directed management to ensure that the systems used by
service providers (PIC and its affiliates) in support of the Series' operations
be assessed and brought into Year 2000 compliance. Based upon preliminary
assessments, PIC has determined that it will be required to modify or replace
portions of its software so that its computer systems will properly utilize
dates beyond December 31, 1999. PIC management believes that the majority of
these systems are already Year 2000 compliant. PIC believes that with
modifications to existing software and conversions to new software, the Year
2000 issue will be mitigated. It is anticipated that such modifications and
conversions will be completed on a timely basis. It is not known at this time if
there could be a material impact on the operations of PIC or its affiliates or
the fund if such modifications and conversions are not completed timely.
PIC will utilize both internal and external resources to reprogram, or
replace, and test the software for Year 2000 modifications. Certain systems are
already in the process of being converted due to previous initiatives and it is
expected that all core systems will be remediated and tested by June 1999. The
total cost to become Year 2000 compliant is not an expense of the Series and is
not expected to have a material impact on the operating results of PIC.
PHOENIX-SENECA MID-CAP GROWTH SERIES
INVESTMENT STRATEGIES
INVESTMENT OBJECTIVE
The Series has an investment objectives of capital appreciation.
Distribution of investment income, such as dividends and interest, is incidental
in the selection of investments. There is no guarantee that the Series will
achieve its objective.
PRINCIPAL INVESTMENT STRATEGIES
The Series invests in a diversified portfolio of securities of primarily
domestic (U.S.) companies. Under normal circumstances the Series intends to
invest at least 65% of its total assets in companies with market capitalizations
between $500 million and $5 billion.
The Series contracts with an adviser, Phoenix Investment Counsel, Inc. to
manage the Series' investment program and be responsible for the general
operation of the Series, and a subadviser, Seneca Capital Management LLC to
manage the investments of the Series. The subadviser selects securities of
companies that meet certain fundamental standards and that the subadviser
believes have the market potential for above average market appreciation. In
evaluating companies' potential for market appreciation, the subadviser seeks
companies that it believes will demonstrate greater long-term earnings growth
than the average company included in the S&P Midcap 400 Index. The strategy is
based on the subadviser's view that growth in a companies' earnings will
correlate with growth in the price of its stock.
The subadviser seeks to identify companies that have the most attractive
earnings prospects and favorable valuations, regardless of the size of the
company. Generally, however, a portion of the Series' portfolio will be invested
in large, well-known companies that have established histories of profitability
and/or dividend payment.
Although the Series stresses long-term earnings growth potential, the
subadviser may buy securities in anticipation of short-term price gains.
Debt instruments, including investment grade and below investment grade
bonds ("junk bonds") and bonds convertible into common stocks, also may be a
part of the Series portfolio. Below investment grade securities present a
greater risk that the issuer will not be able to make interest or principal
payments on time. If this happens, the
76 Phoenix Edge Series Fund
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Series would lose income and could expect a decline in the market value of the
securities.
The Series may invest up to 20% of its total assets in securities of foreign
(non-U.S.) issuers. Foreign investment will be primarily through American
Depository Receipts (ADRs).
The Series may lend portfolio securities to broker-dealers and other
financial institutions to increase its investment returns. The total amount of
such lending can be as much as one-third of the Series' total assets. When the
Series lends securities in this fashion, the borrower returns the securities at
a prearranged time and pays some form of premium or other fee for the
transaction. The Series receives all dividends and other distributions made with
respect to the loaned securities. All securities loans are secured by other
marketable securities.
The Series intends to invest in financial futures contracts, options and
swap agreements only for hedging purposes. However, the Series can invest in
these transactions even if they are not purchased for hedging purposes, that is,
they are purchased as an investment in their own right.
The Series may invest up to 15% of its net assets in securities that are not
liquid. The Series considers investments that the adviser is not likely to be
able to sell within seven business days as not liquid. These securities can
include repurchase agreements, with maturities more than seven days and private
placements. Repurchase agreements are contracts under which the Series will buy
securities that are not sold to investors through a public offering but instead
are sold in direct, private transactions.
Note: If the subadviser determines that market conditions are not favorable
to the types of investments the adviser ordinarily intends to hold, the Series
may invest without limitation in any combination of high quality money market
securities and repurchase agreements. In such instances, the Series may not
achieve its stated investment objective.
Please refer to the Statement of Additional Information for more detailed
information about these and other investment techniques of the Series.
RISKS RELATED TO INVESTMENT STRATEGIES
GENERAL
The Series' focus is long-term earnings growth. The subadviser intends to
invest Series' assets so that your shares increase in value. However, the value
of the Series' investments that support your share value can decrease as well as
increase. If between the time you purchase shares and the time you sell shares
the value of the Series' investments decreases, you will lose money. The value
of the Series' investments can decrease for a number of reasons. For example,
changing economic conditions may cause a decline in value of many or most
investments. Particular industries can face poor market conditions for their
products or services so that companies engaged in those businesses do not
perform as well as companies in other industries. Interest rate changes may
improve prospects for certain types of businesses and they many worsen prospects
for others. To the extent that the Series' investments are affected by general
economic declines, declines in industries, and interest rate changes that
negatively affect the companies in which the Series invests, Series' share
values may decline. Share values also can decline if the specific companies
selected for Series' investment fail to perform as the adviser expects,
regardless of general economic trends, industry trends, interest rates and other
economic factors, Finally, decreases in share values from day to day will be
"paper" losses unless you actually sell your shares. If your financial
circumstances are likely to require you to sell your shares at any particular
time, rather than holding them indefinitely, you run the risk that your sale of
shares will occur when share values have declined. If between the time you
purchase shares and the time you sell shares the value of the Series'
investments decreases you will lose money.
In addition to these general risks of investing in the Series, there are
several specific risks of investing in the Series that you should note.
ANTICIPATING SHORT-TERM PRICE GAINS
The adviser may buy securities that it anticipates will rise in price over a
short period of time. If the securities do not perform as expected, gains will
not be as high as anticipated. Moreover, the adviser buys these securities with
the expectation that they will be sold after a short period of time. Each time a
security is bought or sold, the Series incurs certain costs associated with the
transaction. The more transactions, the higher the overall cost to the Series.
SMALL MARKET CAPITALIZATION INVESTING
The Series may invest in some smaller companies. Companies with small
capitalization are often companies in industries that have recently emerged due
to cultural, economic, regulatory or technological developments. Such
developments can have a significant positive or negative effect on small
capitalization companies and their stock performance. Given the limited
operating history and rapidly changing fundamental prospects, investment returns
from smaller capitalization companies can be highly volatile. Smaller companies
may find their ability to raise capital impaired by their size or lack of
operating history. Product lines are often less diversified and subject to
competitive threats. Smaller capitalization stocks are subject to varying
patterns of trading volume and may, at times, be difficult to sell.
BELOW INVESTMENT GRADE SECURITIES
The Series may invest in securities that are below investment grade.
Although these securities provide greater income and opportunity for capital
appreciation
Phoenix Edge Series Fund 77
<PAGE>
than investments in higher grade securities, they also typically
entail greater price volatility and principal and interest risk. There is a
greater risk that an issuer will not be able to make principal and interest
payments on time. Analysis of the creditworthiness of issuers of below
investment grade securities may be more complex than for higher grade
securities, making it more difficult for the subadviser to accurately predict
risk.
SECURITIES LENDING
When the Series lends portfolio securities it runs the risk that the
borrower will be unable or unwilling to return the securities and the agreed fee
or premium. The value of the collateral taken as security for the securities
loaned may decline in value or may be difficult to convert to cash in the event
that the Series must rely on the collateral to recover the value of its
securities. In these circumstances the Series will suffer losses.
FOREIGN INVESTING
The Series may invest in non-U.S. companies. Investing in the securities of
non-U.S. companies involves special risks and considerations not typically
associated with investing in U.S. companies. These include:
[diamond] differences in accounting, auditing and financial reporting standards,
[diamond] generally higher commission rates on foreign portfolio transactions,
[diamond] differences and inefficiencies in transaction settlement systems,
[diamond] the possibility of expropriation or confiscatory taxation,
[diamond] adverse changes in investment or exchange control regulations,
[diamond] political instability, and
[diamond] potential restrictions on the flow of international capital.
Political and economic uncertainty as well as less public information about
investments may negatively impact the Series' portfolio.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additionally,
dividends and interest payable on foreign securities may be subject to foreign
taxes withheld prior to receipt by the Series. Many of the foreign securities
held by the Series will not be registered with, nor will the issuers of those
securities be subject to the reporting requirements of, the U.S. Securities and
Exchange Commission. Accordingly, there may be less publicly available
information about the securities and about the foreign company or government
issuing them than is available about a domestic company or government entity.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payment positions.
FOREIGN CURRENCY
Portions of the Series' assets may be invested in securities denominated in
foreign currencies. Changes in foreign exchange rates will affect the value of
those securities denominated or quoted in currencies other than the U.S. dollar.
The forces of supply and demand in the foreign exchange markets determine
exchange rates and these forces are in turn affected by a range of economic,
political, financial, governmental and other factors. Exchange rate fluctuations
can affect the Series' net asset value (share price) and dividends either
positively or negatively depending upon whether foreign currencies are
appreciating or depreciating in value relative to the U.S. dollar. Exchange
rates fluctuate over both the long and short terms.
Effective January 1, 1999, eleven European countries began converting from
their sovereign currency to the European Union common currency called the
"Euro." This conversion may expose the Series to certain risks, including the
reliability and timely reporting of pricing information of the Series' portfolio
holdings. In addition, one or more of the following may adversely affect
specific securities in the Series' portfolio:
[diamond] Known trends or uncertainties related to the Euro conversion that an
issuer reasonably expects will have a material impact on revenues,
expenses or income from its operations;
[diamond] Competitive implications of increased price transparency of European
Union markets (including labor markets) resulting from adoption of a
common currency and issuers' plans for pricing their own products and
services in the Euro;
[diamond] Issuers' ability to make required information technology updates on a
timely basis, and costs associated with the conversion (including
costs of dual currency operations through January 1, 2002);
[diamond] Currency exchange rate risk and derivatives exposure (including the
disappearance of price sources, such as certain interest rate
indices); and
[diamond] Potential tax consequences.
FUTURES CONTRACTS, OPTIONS AND SWAP AGREEMENTS
The Series may invest in financial futures contracts and options and enter
into swap agreements. The adviser intends to invest in such securities primarily
to hedge or reduce the risk of holding other investments. If the prices for
futures contracts and prices in the cash market do not correlate as expected or
if the adviser's expectations about interest rate, exchange rate or general
market movements are incorrect, the Series' returns may not be as high as they
would be if the adviser did not invest in these securities. There is also a risk
that the market for reselling financial
78 Phoenix Edge Series Fund
<PAGE>
futures contracts and options may be limited or nonexistent. The Series could
incur unlimited losses if it cannot liquidate certain futures contracts. The
subadviser's decisions about the nature and timing of futures contract and
options and swap transactions may result in losses when other investors'
decisions about the same contracts, options or swaps result in gains.
ILLIQUID SECURITIES
Securities owned by the Series that are not liquid may be difficult to sell
because there may be no active markets for resale and fewer potential buyers.
This can make illiquid investments more likely than other types of investments
to lose value. In extreme cases it may be impossible to resell them and they can
become almost worthless to the Series.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES INVESTMENTS
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. There is the
possibility that some or all of a company's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. If a company whose securities are held by the Series does
not "fix" its Year 2000 issue, it is possible that its operations and financial
results would be hurt. Also, the cost of modifying computer programs to become
Year 2000 compliant may hurt the financial performance and market price of
companies whose securities are held by the Series.
MANAGEMENT OF THE FUNDS
THE ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to the
Series and is located at 56 Prospect Street, Hartford, Connecticut 06115. PIC
also acts as the investment adviser for 14 mutual funds, as subadviser to three
mutual funds and as adviser to institutional clients. As of December 31, 1998,
PIC had $23.9 billion in assets under management. PIC has acted as an investment
adviser for over sixty years.
Seneca Capital Management LLC ("Seneca") is the investment subadviser to the
Series and is located at 909 Montgomery Street, San Francisco, California 94133.
Seneca acts as a subadviser to two mutual funds and acts as investment adviser
to institutions and individuals. As of December 31, 1998, Seneca had $5.9
billion in assets under management. Seneca has been (with its predecessor,
GMG/Seneca Capital Management LP) an investment adviser since 1989.
Subject to the direction of the fund's Board of Trustees, PIC is responsible
for managing the Series' investment program and the general operations of the
Series. Seneca, as subadviser, is responsible for day-to-day management of the
Series' portfolios.
Seneca manages the Series', assets to conform with the investment policies
as described in the prospectus. The Series pays PIC a monthly investment
management fee that is accrued daily against the value of that Series' net
assets at the rate of 0.80% annually.
Phoenix pays Seneca an annual subadvisory fee of 0.40%.
During the Series' last fiscal year, the Series paid total management fees
of $31,013. The ratio of management fees to average net assets for the fiscal
year ended December 31, 1998 was .80%. The advisory fee is greater than that for
most Series; however, the Trustees have determined that it is comparable to fees
charged by other funds whose investment objectives are similar to those of the
Series.
PORTFOLIO MANAGEMENT
Investment and trading decisions for the Series are made by a team of
managers and analysts headed by two team leaders. The team leaders are primarily
responsible for the day-to-day decisions.
Gail P. Seneca is a team leader for the Series. Since January 1998, Ms.
Seneca also has served as Co-Manager of Phoenix Equity Opportunities Series of
Phoenix Strategic Equity Series Fund and since June 1998, she has served as
Co-Manager of Phoenix Mid-Cap Portfolio of Phoenix Multi-Portfolio Fund. Ms.
Seneca has been the Chief Executive and Investment Officer of Seneca or
GMG/Seneca since November 1989. From October 1987 until October 1989, she was
Senior Vice President of the Asset Management Division of Wells Fargo Bank, and
from October 1983 to September 1987, she was Investment Strategist and Portfolio
Manager for Chase Lincoln Bank, heading the fixed income division.
Richard D. Little is the other team leader for the Series. Since January
1998, Mr. Little has served as Co-Manager of Phoenix Equity Opportunities Series
of Phoenix Strategic Equity Series Fund, and since June 1998, he has served as
Co-Manager of Phoenix Mid-Cap Portfolio of Phoenix Multi-Portfolio Fund. Mr.
Little has been Director of Equities with Seneca or GMG/Seneca since December
1989. Before he joined GMG/Seneca, Mr. Little held positions as an analyst,
board member, and regional manager with Smith Barney, NatWest Securities, and
Montgomery Securities.
IMPACT OF THE YEAR 2000 ISSUE ON SERIES' INVESTMENTS
The Trustees have directed management to ensure that the systems used by
service providers (PIC, Seneca and their affiliates) in support of the Series'
operations be assessed and brought into Year 2000 compliance. Based upon
preliminary assessments, PIC and Seneca have determined that they will be
required to modify or replace portions of their software so that their computer
systems will properly utilize dates beyond December 31, 1999. PIC and Seneca
management believe that the majority of these systems are already Year 2000
compliant. PIC and Seneca believe that with modifications to existing software
and conversions to new software, the Year 2000 issue will be
Phoenix Edge Series Fund 79
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mitigated. It is anticipated that such modifications and conversions will be
completed on a timely basis. It is not known at this time if there could be a
material impact on the operations of PIC, Seneca or their affiliates or the
Series if such modifications and conversions are not completed timely.
PIC and Seneca will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications.
Certain systems are already in the process of being converted due to previous
initiatives and it is expected that all core systems will be remediated and
tested by June 1999. The total cost to become Year 2000 compliant is not an
expense of the Series and is not expected to have a material impact on the
operating results of PIC or Seneca.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund may not invest more than 25% of the assets of any one Series in any
one industry (except that the Money Market and Allocation Series may invest more
than 25% of their assets in the banking industry and the Real Estate Series may
invest at least 75% of its assets in the real estate industry). If the Fund
makes loans of the portfolio securities of any Series, the market value of the
securities loaned may not exceed 25% of the market value of the total assets of
such Series.
In addition to the investment restrictions described above, each Series'
investment program is subject to further restrictions which are described in the
Statement of Additional Information. The restrictions for each Series are
fundamental and may not be changed without shareholder approval.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
Each Series pays brokerage commissions for purchases and sales of portfolio
securities. A high rate of portfolio turnover involves a correspondingly greater
amount of brokerage commissions and other costs which must be borne directly by
a Series and thus indirectly by its shareholders. It also may result in the
realization of larger amounts of short-term capital gains, which are taxable to
shareholders as ordinary income. The rate of portfolio turnover is not a
limiting factor when the Adviser deems changes appropriate. It is anticipated
that the turnover rate for the Phoenix Research Enhanced Index, Phoenix-Engemann
Nifty Fifty, Phoenix-Seneca Mid-Cap Growth, Phoenix-Oakhurst Growth and Income,
Phoenix-Hollister Value Equity and Phoenix-Schafer Mid-Cap Value Series
generally will not exceed 100%. Although securities for the Phoenix-Goodwin
Strategic Theme Series are not purchased for the short-term, the Adviser's
strict sell discipline may result in rates of portfolio turnover equivalent to
those identified by the SEC as appropriate for capital appreciation funds with
substantial short-term trading. The Adviser's approach dictates that
underperforming securities and securities not consistent with prevailing themes
will be sold. Portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities during the fiscal year by the monthly
average of the value of the Series' securities (excluding short-term
securities). The turnover rate may vary greatly from year to year and may be
affected by cash requirements for redemptions of shares of a Series and by
compliance with provisions of the Internal Revenue Code, relieving investment
companies which distribute substantially all of their net income from federal
income taxation on the amounts distributed. The rates of portfolio turnover for
each Series (other than the Phoenix-Goodwin Money Market, Phoenix-Engemann Nifty
Fifty, Phoenix-Seneca Mid-Cap Growth, Phoenix-Oakhurst Growth and Income,
Phoenix-Hollister Value Equity and Phoenix-Schafer Mid-Cap Value Series) are set
forth under "Financial Highlights." For more information regarding the
consequences related to a high portfolio turnover rate, see "Portfolio
Transactions and Brokerage" and "Dividends, Distributions and Taxes" in the
Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
The Fund is a mutual fund, technically known as an open-end, diversified
investment company. The Board of Trustees supervises the business affairs and
investments of the Fund, which is managed on a daily basis by the Fund's
investment advisers. The Fund was organized as a Massachusetts business trust on
February 18, 1986. The Fund issues shares of beneficial interest in 15 Series.
The Statement of Additional Information contains a list of the members of the
Board of Trustees and the officers of the Fund.
SHARES OF BENEFICIAL INTEREST
- --------------------------------------------------------------------------------
The Fund currently has fifteen Series of shares of beneficial interest.
Shares (including fractional shares) of each Series have equal rights with
regard to voting, redemptions, dividends, distributions and liquidations with
respect to that Series. All voting rights of the Accounts as shareholders are
passed through to the Contract Owners and Policyowners. Shareholders of all
Series currently vote on the election of Trustees and other matters. On matters
affecting an individual Series (such as approval of an Investment Advisory
Agreement or a change in fundamental investment policies), a separate vote of
that Series is required.
Fund shares attributable to any Phoenix, PHL Variable or PLAC assets and
Fund shares for which no timely instructions from Contract Owners or
Policyowners are received will be voted by Phoenix, PHL Variable and PLAC in the
same proportion as those shares in that Series for which instructions are
received.
80 Phoenix Edge Series Fund
<PAGE>
Shares are fully paid, nonassessable, redeemable and fully transferable when
they are issued. Shares do not have cumulative voting rights, preemptive rights
or subscription rights.
The assets received by the Fund for the issue or sale of shares of each
Series, and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated to such Series, and constitute the
underlying assets of such Series. The underlying assets of each Series are
required to be segregated on the books of account, and are to be charged with
the expenses of the Series and with a share of the general expenses of the Fund.
Any general expenses of the Fund not readily identifiable as belonging to a
particular Series shall be allocated by or under the direction of the Trustees
in such manner as the Trustees determine to be fair and equitable.
Unlike the stockholders of a corporation, there is a possibility that the
Accounts as shareholders of a business trust such as the Fund may be liable for
debts or claims against the Fund. The Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Fund and that every written agreement, undertaking or
obligation made or issued by the Fund shall contain a provision to that effect.
The Declaration of Trust provides for indemnification out of the Fund's property
for all losses and expenses of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of the Accounts, as shareholders,
incurring loss because of shareholder liability is limited to circumstances in
which the Fund itself would be unable to meet its obligations. Phoenix, PHL
Variable and PLAC, as the sole shareholders, have a fiduciary duty to bear this
risk and Contract Owners and Policyowners are fully and completely insulated
from risk.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Series is determined as of the close
of regular trading of the NYSE on days when the NYSE is open for trading. The
net asset value per share of a Series is determined by adding the values of all
securities and other assets of the Series, subtracting liabilities and dividing
by the total number of outstanding shares of the Series.
The Series' investments are valued at market value or, where market
quotations are not available, at fair value as determined in good faith by the
Trustees or their delegates. Foreign and domestic debt securities (other than
short-term investments) are valued on the basis of broker quotations or
valuations provided by a pricing service approved by the Trustees when such
prices are believed to reflect the fair value of such securities. Foreign and
domestic equity securities are valued at the last sale price or, if there has
been no sale that day, at the last bid price, generally. Short-term investments
having a remaining maturity of less than 61 days are valued at amortized cost,
which the Trustees have determined approximates market. For further information
about security valuations, see the Statement of Additional Information.
TAXES
- --------------------------------------------------------------------------------
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code ("Code") and so qualified for its last
taxable year. In addition, the Fund intends to comply with the investment
diversification requirements for variable contracts contained in the Code.
Moreover, the Fund intends to distribute sufficient income to avoid imposition
of any Federal excise tax. Dividends derived from interest and distributions of
any realized capital gains are taxable, under Subchapter M, to the Fund's
shareholders, which in this case are the Accounts. The Phoenix-Aberdeen
International and Phoenix-Aberdeen New Asia Series may incur liability for
foreign income and withholding taxes on investment income. The Phoenix-Aberdeen
International and Phoenix-Aberdeen New Asia Series intend to qualify for, and
may make, an election permitted under the Code to enable the shareholder
Accounts (and therefore Phoenix) to claim a credit or deduction on Phoenix's
income tax return for the Accounts' pro rata share of the income and withholding
taxes paid by the Phoenix-Aberdeen International and Phoenix-Aberdeen New Asia
Series to foreign countries. Phoenix also will treat the foreign income taxes
paid by the Series as income. Contract Owners and Policyowners will not be
required to treat the foreign income taxes paid by the Series as income or be
able to claim a credit or deduction for these taxes on their income tax returns.
For a discussion of the taxation of the Accounts, see "Federal Tax
Considerations" included in the Accounts' Prospectuses.
Although the Phoenix-Duff & Phelps Real Estate Securities Series may be a
nondiversified portfolio, the Fund intends to comply with the diversification
and other requirements of the Code applicable to "regulated investment
companies" so that it will not be subject to U.S. federal income tax on income
and capital gain distributions to shareholders. Accordingly, the Phoenix-Duff &
Phelps Real Estate Securities Series will insure that no more than 25% of its
total assets would be invested in the securities of a single issuer and that at
least 50% of its total assets is represented by cash and cash items and other
securities limited in respect of any one issuer to an amount no greater than 5%
of the total value of the assets of the Series.
In addition, if the Phoenix-Duff & Phelps Real Estate
Securities Series has rental income or income from the disposition of real
property acquired as a result of a default on securities the Phoenix-Duff &
Phelps Real Estate Securities Series may own, the receipt of such income may
adversely affect its ability to retain its tax status as a regulated investment
company.
Phoenix Edge Series Fund 81
<PAGE>
APPENDIX
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A-1 AND P-1 COMMERCIAL PAPER RATINGS
The Phoenix-Goodwin Money Market Series will invest only in commercial paper
which at the date of investment is rated A-1 by S&P or P-1 by Moody's or, if not
rated, is issued or guaranteed by companies which at the date of investment have
an outstanding debt issue rated AA or higher by S&P or Aa or higher by Moody's.
Commercial paper rated A-1 by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned.
The rating P-1 is the highest commercial paper rating assigned by Moody's.
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluation of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; (3) evaluation of the issuer's products in
relation to competition and customer acceptance; (4) liquidity; (5) amount and
quality of long-term debt; (6) trend of earnings over a period of 10 years; (7)
financial strength of a parent company and the relationship which exists with
the issuer; and (8) recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations.
MOODY'S CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
S&P'S CORPORATE BOND RATINGS
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
82 Phoenix Edge Series Fund
<PAGE>
BB-B-CCC-CC--Bonds rated BB, B, CCC are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with terms of the obligation. BB indicates the lowest
degree of speculation and CCC the highest degree of speculation. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
Ability to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirement.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
D--Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Phoenix Edge Series Fund 83
<PAGE>
A document called a Statement of Additional Information ("SAI") dated May,
1999, containing further information about the Fund and each of the Series, has
been filed with the Securities and Exchange Commission ("SEC") and is
incorporated by reference into this prospectus.
Additional information about the Fund's investments is available in the
Fund's Annual and Semiannual Reports to Shareholders. In the Fund's Annual
Report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
Inquiries and requests for the Statement of Additional Information and the
Annual Report to Shareholders should be directed in writing to Phoenix Variable
Products Mail Operations, PO Box 8027, Boston, Massachusetts 02266-8027, or by
telephoning (800) 541-0171.
<PAGE>
PART B
<PAGE>
THE PHOENIX EDGE SERIES FUND
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
101 Munson Street MAIL OPERATIONS ("VPMO"):
Greenfield, Massachusetts P.O. Box 8027
Boston, MA 02266-8027
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the Prospectus. Accordingly, this Statement should be read
together with the Fund's current Prospectus, dated May 1, 1999, which may be
obtained by calling Variable Products Operations ("VPO") at (800) 541-0171, or
by writing to VPMO.
-------------------------
TABLE OF CONTENTS
PAGE
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The Phoenix Edge Series Fund .......................................... 2
Investment Policies ................................................... 2
Investment Restrictions................................................ 17
Portfolio Turnover..................................................... 18
Management of the Fund ................................................ 19
The Investment Advisers ............................................... 28
Custodian ............................................................. 31
Foreign Custodian ..................................................... 31
Independent Accountants ............................................... 32
Brokerage Allocation .................................................. 32
Determination of Net Asset Value ...................................... 33
Investing In the Fund ................................................. 33
Redemption of Shares .................................................. 34
Taxes ................................................................. 34
Financial Statements .................................................. 34
1
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THE PHOENIX EDGE SERIES FUND
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The Phoenix Edge Series Fund (the "Fund") is an open-end investment company
as defined in the Investment Company Act of 1940. It was formed on February 18,
1986 as a Massachusetts business trust and commenced operations on December 5,
1986. Shares in each Series of the Fund are available only to certain insurance
company separate accounts.
The Phoenix Home Life Variable Accumulation Account is a separate account of
Phoenix Home Life Mutual Insurance Company ("Phoenix") created on June 21, 1982.
The Phoenix Home Life Variable Universal Life Account is a separate account
of Phoenix created on June 17, 1985.
The PHL Variable Accumulation Account is a separate account of PHL Variable
Insurance Company ("PHL Variable") formed on December 7, 1994.
The PHL Variable Universal Life Account is a separate account of PHL
Variable formed on September 10, 1998.
The Phoenix Life and Annuity Variable Universal Life Account is a separate
account of Phoenix Life and Annuity Company ("PLAC") formed in March 1996.
The executive offices of the Accounts, Phoenix, PHL Variable and PLAC are
located at One American Row, Hartford, Connecticut. The Accounts own the
majority of the shares of the Fund.
INVESTMENT POLICIES
The investment objectives and policies of each Series are described in the
"Investment Objectives and Policies" section of the Prospectus. The following
specific policies supplement the information contained in that section of the
Prospectus.
MONEY MARKET INSTRUMENTS
Certain money market instruments used extensively by the Phoenix-Goodwin
Money Market and Phoenix-Goodwin Strategic Allocation Series are described
below. They also may be used by the Phoenix-Aberdeen International, Phoenix-Duff
& Phelps Real Estate Securities, Phoenix-Goodwin Strategic Theme, Phoenix
Research Enhanced Index and Phoenix-Aberdeen New Asia Series and may be used by
the other Series to a very limited extent to invest otherwise idle cash, or on a
temporary basis for defensive purposes.
Repurchase Agreements. Repurchase Agreements are agreements by which a
Series purchases a security and obtains a simultaneous commitment from the
seller (a member bank of the Federal Reserve System or, to the extent permitted
by the Investment Company Act of 1940, a recognized securities dealer) that the
seller will repurchase the security at an agreed upon price and date. The resale
price is in excess of the purchase price and reflects an agreed upon market rate
unrelated to the coupon rate on the purchased security. In fact, such a
transaction is a loan of money to the seller of the securities.
A repurchase transaction is usually accomplished either by crediting the
amount of securities purchased to the accounts of the custodian of the Fund
maintained in a central depository or book-entry system or by physical delivery
of the securities to the Fund's custodian in return for delivery of the purchase
price to the seller. Repurchase transactions are intended to be short-term
transactions with the seller repurchasing the securities, usually within seven
days.
Even though repurchase transactions usually do not impose market risks on
the purchasing Series, if the seller of the repurchase agreement defaults and
does not repurchase the underlying securities, the Series might incur a loss if
the value of the underlying securities declines, and disposition costs may be
incurred in connection with liquidating the underlying securities. In addition,
if bankruptcy proceedings are commenced regarding the seller, realization upon
the underlying securities may be delayed or limited, and a loss may be incurred
if the underlying securities decline in value.
U.S. Government Obligations. Securities issued or guaranteed as to principal
and interest by the United States Government include a variety of Treasury
securities, which differ only in their interest rates, maturities, and times of
issuance. Treasury bills have a maturity of one year or less. Treasury notes
have maturities of one to seven years, and Treasury bonds generally have
maturity of greater than five years.
Agencies of the United States Government which issue or guarantee
obligations include, among others, Export-Import Bank of the United States,
Farmers Home Administration, Federal Housing Administration, Government National
Mortgage Association, Maritime Administration, Small Business Administration and
The Tennessee Valley Authority. Obligations of instrumentalities of the United
States Government include securities issued or guaranteed by, among others, the
Federal National Mortgage Association, Federal Home Loan Banks, Federal Home
Loan Mortgage Corporation, Federal Intermediate Credit Banks, Banks for
Cooperatives and the U.S. Postal Service. Securities issued or guaranteed by the
Export-Import Bank of the United States, Farmer's Home Administration, Federal
Housing Administration, Government National Mortgage Association, Maritime
Administration and Small Business Administration are supported by the full faith
and credit of the U.S. Treasury. Securities issued or guaranteed by Federal
National Mortgage Association and Federal Home Loan Banks are supported by the
right of the issuer to borrow from the Treasury. Securities issued or guaranteed
by the other agencies or instrumentalities listed above are supported only by
the credit of the issuing agency.
2
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Certificates of Deposit. Certificates of deposit are generally short-term,
interest-bearing negotiable certificates issued by banks or savings and loan
associations against funds deposited in the issuing institution.
Time Deposits. Time deposits are deposits in a bank or other financial
institution for a specified period of time at a fixed interest rate for which a
negotiable certificate is not received.
Bankers' Acceptances. A banker's acceptance is a time draft drawn on a
commercial bank by a borrower usually in connection with an international
commercial transaction (to finance the import, export, transfer or storage of
goods). The borrower, as well as the bank, is liable for payment, and the bank
unconditionally guarantees to pay the draft at its face amount on the maturity
date. Most acceptances have maturities of six months or less and are traded in
secondary markets prior to maturity.
Commercial Paper. Commercial paper refers to short-term, unsecured
promissory notes issued by corporations to finance short-term credit needs.
Commercial paper is usually sold on a discount basis and has a maturity at the
time of issuance not exceeding nine months.
Corporate Debt Securities. Corporate debt securities with a remaining
maturity of less than one year tend to become extremely liquid and are traded as
money market securities.
All of the Phoenix-Goodwin Money Market Series' investments will mature in
397 days or less and will have a weighted average age of not more than 90 days.
By limiting the maturity of its investments, the Series seeks to lessen the
changes in the value of its assets caused by market factors. This Series,
consistent with its investment objective, will attempt to maximize yield through
portfolio trading. This may involve selling portfolio instruments and purchasing
different instruments to take advantage of disparities of yields in different
segments of the high grade money market or among particular instruments within
the same segment of the market. It is expected that the Series' portfolio
transactions generally will be with issuers or dealers in money market
instruments acting as principal. Accordingly, this Series will normally not pay
any brokerage commissions.
The value of the securities in the Phoenix-Goodwin Money Market Series'
portfolio can be expected to vary inversely to changes in prevailing interest
rates, with the amount of such variation depending primarily on the period of
time remaining to maturity of the security. Long-term obligations may fluctuate
more in value than short-term obligations. If interest rates increase after a
security is purchased, the security, if sold, could be sold at a loss. On the
other hand, if interest rates decline after a purchase, the security, if sold,
could be sold at a profit. If, however, the security is held to maturity, no
gain or loss will be realized as a result of interest rate fluctuations,
although the day-to-day valuation of the portfolio could fluctuate. Substantial
withdrawals of the amounts held in the Phoenix-Goodwin Money Market Series could
require it to sell portfolio securities at a time when a sale might not be
favorable. The value of a portfolio security also may be affected by other
factors, including factors bearing on the credit-worthiness of its issuer. A
more detailed discussion of amortized cost is contained under "Determination of
Net Asset Value."
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES: MARKET SEGMENT INVESTMENTS AND
TRADING
Market Segment Investments. The Phoenix-Goodwin Strategic Allocation Series
seeks to achieve its investment objective by investing in the three market
segments of stocks, bonds and money market instruments described below.
[diamond] STOCK--common stocks and other equity-type securities such as
preferred stocks, securities convertible into common stock and
warrants;
[diamond] BONDS--bonds and other debt securities with maturities generally
exceeding one year, including:
[bullet] publicly offered straight debt securities having a rating within
the four highest grades as determined by Moody's Investors Service,
Inc. (Aaa, Aa, A or Baa) or Standard & Poor's Corporation (AAA, AA,
A or BBB) or, if unrated, those publicly offered straight debt
securities which are judged by the Account to be of equivalent
quality to securities so rated;
[bullet] obligations issued, sponsored, assumed or guaranteed as to
principal and interest by the U.S. Government or its agencies or
instrumentalities;
[bullet] obligations (payable in U.S. dollars) issued or guaranteed as to
principal and interest by the Government of Canada or of a Province
of Canada or any instrumentality or political subdivision thereof,
provided such obligations have a rating within the highest grades
as determined by Moody's (Aaa, Aa or A) or Standard & Poor's (AAA,
AA or A) and do not exceed 25% of the Phoenix-Goodwin Strategic
Allocation Series' total assets;
[bullet] publicly offered straight debt securities issued or guaranteed by a
national or state bank or bank holding company (as defined in the
Federal Bank Holding Company Act, as amended) having a rating
within the three highest grades as determined by Moody's (Aaa, Aa
or A) or Standard & Poor's (AAA, AA or A), and certificates of
deposit of such banks; and
[bullet] high yield, high risk fixed income securities (commonly referred to
as "junk bonds") having a rating below Baa by Moody's Investors
Service, Inc. or BBB by Standard & Poor's Corporation or unrated
securities of comparable quality provided such securities do not
exceed 5% of the Phoenix-Goodwin Strategic Allocation Series' total
assets.
3
<PAGE>
[diamond] MONEY MARKET--money market instruments and other debt securities with
maturities generally not exceeding one year, including:
[bullet] those money market instruments described in this Statement of
Additional Information; and
[bullet] reverse repurchase agreements with respect to any of the foregoing
obligations. Reverse repurchase agreements are agreements in which
the Series, as the seller of the securities, agrees to repurchase
them at an agreed time and price. This transaction constitutes a
borrowing of money by the seller of the securities. The Series will
maintain sufficient funds in a segregated account with its
Custodian to repurchase securities pursuant to any outstanding
reverse repurchase agreement. The Series is required to maintain at
all times asset coverage of at least 300% for all obligations under
reverse repurchase agreements.
Trading. In order to achieve the Series' investment objective, the timing
and amounts of purchases and sales of particular securities and particular types
of securities (i.e., common stock, debt, money market instruments) will be of
significance. As a result, the Phoenix-Goodwin Strategic Allocation Series
intends to use trading as a means of managing the portfolio of the Series in
seeking to achieve its investment objective. Trading is used primarily in
anticipation of, or in response to, market developments or to take advantage of
yield disparities. The Adviser will engage in trading when it believes that the
trade, net of transaction costs, will improve interest income or capital
appreciation potential, or will lessen capital loss potential. Whether these
goals will be achieved through trading depends on the Adviser's ability to
evaluate particular securities and anticipate relevant market factors, including
interest rate trends and variations. Such trading places a premium on the
Adviser's ability to obtain relevant information, evaluate it properly and take
advantage of its evaluations by completing transactions on a favorable basis. If
the Adviser's evaluations and expectations prove to be incorrect, the Series'
income or capital appreciation may be reduced and its capital losses may be
increased. Portfolio trading involves transaction costs, but, as explained
above, will be engaged in when the Adviser believes that the result of the
trading, net of transaction costs, will benefit the Series. Purchases and sales
of securities will be made, whenever necessary in the Adviser's view, to achieve
the total return investment objective of the Series without regard to the
resulting brokerage costs.
In addition to the traditional investment techniques for purchasing and
selling and engaging in trading, the Phoenix-Goodwin Strategic Allocation Series
may enter into financial futures and options contracts.
PHOENIX RESEARCH ENHANCED INDEX SERIES
The investment strategy of the Phoenix Research Enhanced Index Series is to
earn a total return modestly in excess of the total return performance of the
S&P 500 (including the reinvestment of dividends) while maintaining a volatility
of return similar to the S&P 500. The Series is appropriate for investors who
seek a modestly enhanced total return relative to that of large- and
medium-sized U.S. companies typically represented in the S&P 500. The Portfolio
intends to invest in securities of approximately 350 issuers, which securities
are rated by the Series' Subadviser to have above average expected returns.
The Series' seeks to achieve its investment objective through fundamental
analysis, systematic stock valuation and disciplined portfolio construction.
[diamond] Fundamental research: The Series' Subadviser's approximately 25
domestic equity analysts, each an industry specialist with an
average of approximately 12 years experience, follow over 900
predominantly large- and medium-sized U.S. companies--approximately
550 of which form the universe for the Series' investments. A
substantial majority of these companies are issuers of securities
which are included in the S&P 500. The analysts' research goal is to
forecast normalized, longer-term earnings and dividends for the
companies that they cover.
[diamond] Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, which
calculates those expected returns by solving for the rate of return
that equates the company's current stock price to the present value
of its estimated long-term earnings power. Within each sector,
companies are ranked by their expected return and grouped into
quintiles; those with the highest expected returns (Quintile 1) are
deemed the most undervalued relative to their long-term earnings
power, while those with the lowest expected returns (Quintile 5) are
deemed the most overvalued.
[diamond] Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Sector weightings
will generally approximate those of the S&P 500. The Series will
normally be principally comprised, based on the dividend discount
model, of stocks in the first four quintiles. Finally, the Series
holds a large number of stocks to enhance its diversification.
Under normal market circumstances, the Series' Adviser will invest at least
80% of its net assets in equity securities consisting of common stocks and other
securities with equity characteristics such as trust interests, limited
partnership interests, preferred stocks, warrants, rights and securities
convertible into common stock. The Series' primary equity investments will be
the common stock of large- and medium-sized U.S. companies with market
capitalizations above $1 billion. Such securities will be listed on a national
securities exchange or traded in the over-the-counter market. The Series may
invest in similar securities of foreign corporations, provided that the
securities of such corporations are included in the S&P 500.
4
<PAGE>
The Series intends to manage its portfolio actively in pursuit of its
investment objective. Since the Series has a long-term investment perspective,
it does not intend to respond to short-term market fluctuations or to acquire
securities for the purpose of short-term market fluctuations or to acquire
securities for the purpose of short-term trading; however, it may take advantage
of short-term trading opportunities that are consistent with its objective.
FINANCIAL FUTURES AND RELATED OPTIONS
The Phoenix-Goodwin Strategic Allocation, Phoenix-Hollister Value Equity,
Phoenix-Oakhurst Growth and Income, Phoenix-Seneca Mid-Cap Growth and
Phoenix-Goodwin Balanced Series may enter into financial futures contracts for
the purchase or sale of debt obligations which are traded on exchanges that are
licensed and regulated by Commodity Futures Trading Commission.
A futures contract on a debt obligation is a binding contractual commitment
which, if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of obligations having a standard face value
and rate of return. By entering into a futures contract for the purchase of a
debt obligation, a Series will legally obligate itself to accept delivery of the
underlying security and pay the agreed price. Futures contracts are valued at
the most recent settlement price, unless such price does not reflect the fair
value of the contract, in which case such positions will be valued by or under
the direction of the Board of Trustees of the Fund.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in a
profit or loss. While futures positions taken by a Series usually would be
liquidated in this manner, it may instead make or take delivery of the
underlying securities whenever it appears economically advantageous for it to do
so.
The purpose of hedging in debt obligations is to establish more certainty
than otherwise would be possible in the effective rate of return on portfolio
securities. A Series might, for example, take a "short" position in the futures
markets by entering into contracts for the future delivery of securities held by
it in order to hedge against an anticipated rise in interest rates that would
adversely affect the value of such securities. When hedging of this type is
successful, any depreciation in the value of securities will be substantially
offset by appreciation in the value of the futures position. On the other hand,
a Series might take a "long" position by entering into contracts for the future
purchase of securities. This could be done when the Series anticipated the
future purchase of particular debt securities but expects the rate of return
then available in the securities market to be less favorable than rates that are
currently available in the futures markets.
A Series will incur brokerage fees in connection with its financial futures
transactions, and will be required to deposit and maintain funds with its
custodian in its own name as margin to guarantee performance of its future
obligations.
While financial futures would be traded to reduce certain risks, futures
trading itself entails certain other risks. One risk arises because of the
imperfect correlation between movements in the price of the futures contracts
and movements in the price of the debt securities which are the subject of such
contracts. In addition, the market price of futures contracts may be affected by
certain factors, such as the closing out of futures contracts by investors
through offsetting transactions, margin, deposit and maintenance requirements,
and the participation of speculators in the futures market. Another risk is that
there may not be a liquid secondary market on an exchange or board of trade for
a given futures contract or at a given time, and in such event it may not be
possible for the Series to close a futures position. Finally, successful use of
futures contracts by a Series is subject to the Adviser's ability to correctly
predict movements in the direction of interest rates and other factors affecting
the market for debt securities. Thus, while a Series may benefit from the use of
such contracts, the operation of these risk factors may result in a poorer
overall performance for the Series than if it had not entered into any futures
contract.
A Series is required to maintain, at all times, an asset coverage of at
least 300% for all of its borrowings, which include obligations under any
financial futures contract on a debt obligation or reverse repurchase agreement.
In addition, immediately after entering into a futures contract for the receipt
or delivery of a security, the value of the securities called for by all of the
Series' futures contracts (both for receipts and delivery) will not exceed 10%
of its total assets. A futures contract for the receipt of a debt obligation
will be offset by any asset, including equity securities and noninvestment grade
debt so long as the asset is liquid, unencumbered and marked to market daily
held in a segregated account with the custodian bank for the Series in an amount
sufficient to cover the cost of purchasing the obligation.
Phoenix-Aberdeen International, Phoenix Research Enhanced Index,
Phoenix-Hollister Value Equity, Phoenix-Seneca Mid-Cap Growth, Phoenix-Oakhurst
Growth and Income and Phoenix-Aberdeen New Asia Series. The Phoenix-Aberdeen
International, Phoenix Research Enhanced Index, Phoenix-Hollister Value Equity,
Phoenix-Seneca Mid-Cap Growth, Phoenix-Oakhurst Growth and Income and
Phoenix-Aberdeen New Asia Series may enter into financial futures contracts and
related options as a hedge against anticipated changes in the market value of
its portfolio securities or securities which it intends to purchase or in the
exchange rate of foreign currencies. Hedging is the initiation of an offsetting
position in the futures market which is intended to minimize the risk associated
with a position's underlying securities in the cash market.
5
<PAGE>
Financial futures contracts consist of interest rate futures contracts,
foreign currency futures contracts and securities index futures contracts. An
interest rate futures contract obligates the seller of the contract to deliver,
and the purchaser to take delivery of, the interest rate securities called for
in the contract at a specified future time and at a specified price. A foreign
currency futures contract obligates the seller of the contract to deliver, and
the purchaser to take delivery of, the foreign currency called for in the
contract at a specified future time and at a specified price. A securities index
assigns relative values to the securities included in the index, and the index
fluctuates with changes in the market values of the securities so included. A
securities index futures contract is a bilateral agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value at the close of the
last trading day of the contract and the price at which the futures contract is
originally struck. An option on a financial futures contract gives the purchaser
the right to assume a position in the contract (a long position if the option is
a call and a short position if the option is a put) at a specified exercise
price at any time during the period of the option.
The Series may purchase and sell financial futures contracts which are
traded on a recognized exchange or board of trade and may purchase or exchange
board-traded put and call options on financial futures contracts.
The Series will engage in transactions in financial futures contracts and
related options only for hedging purposes and not for speculation. In addition,
it will not purchase or sell any financial futures contract or related option
if, immediately thereafter, the sum of the cash or U.S. Treasury bills committed
with respect to its existing futures and related options positions and the
premiums paid for related options would exceed 5% of the market value of its
total assets. At the time of the purchase of a futures contract or a call option
on a futures contract, any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily equal to the market value of the futures contract, minus the initial
margin deposit with respect thereto, will be deposited in a segregated account
with the Fund's custodian bank to collateralize fully the position and thereby
ensure that it is not leveraged. The extent to which the Series may enter into
financial futures contracts and related options also may be limited by
requirements of the Internal Revenue Code of 1986 (the "Code") for qualification
as a regulated investment company.
Engaging in transactions in financial futures contracts involves certain
risks, such as the possibility of an imperfect correlation between futures
market prices and cash market prices and the possibility that the Adviser or
Subadviser could be incorrect in its expectations as to the direction or extent
of various interest rate movements or foreign currency exchange rates, in which
case the Series' return might have been greater had hedging not taken place.
There also is the risk that a liquid secondary market may not exist. The risk in
purchasing an option on a financial futures contract is that the Series will
lose the premium it paid. Also, there may be circumstances when the purchase of
an option on a financial futures contract would result in a loss to the Series
while the purchase or sale of the contract would not have resulted in a loss.
Phoenix-Goodwin Strategic Theme Series. The Phoenix-Goodwin Strategic Theme
Series may use financial futures contracts and related options to hedge against
changes in the market value of its portfolio securities which it intends to
purchase. Hedging is accomplished when an investor takes a position in the
futures market opposite to his cash market position. There are two types of
hedges--long (or buying) and short (or selling) hedges. Historically, prices in
the futures market have tended to move in concert with cash market prices, and
prices in the futures market have maintained a fairly predictable relationship
to prices in the cash market. Thus, a decline in the market value of securities
in a Series' portfolio may be protected against to a considerable extent by
gains realized on futures contracts sales. Similarly, it is possible to protect
against an increase in the market price of securities which a Series may wish to
buy in the future by purchasing futures contracts.
The Phoenix-Goodwin Strategic Theme Series may purchase or sell any
financial futures contracts which are traded on a recognized exchange or board
of trade. Financial futures contracts consist of interest rate futures contracts
and securities index futures contracts. A public market presently exists in
interest rate futures contracts covering long-term U.S. Treasury bonds, U.S.
Treasury notes, 3-month U.S. Treasury bills and GNMA certificates. Securities
index futures contracts are currently traded with respect to the S&P 500. A
clearing corporation associated with the New York Stock Exchange ("NYSE") or
board of trade on which a financial futures contract trades assumes
responsibility for the completion of transactions and also guarantees that open
futures contracts will be performed.
In contrast to the situation when such Series purchases or sells a security,
no security is delivered or received by the Series upon the purchase or sale of
a financial futures contract. Initially, this Series will be required to deposit
in a segregated account with its custodian bank an amount of cash, U.S. Treasury
bills or liquid high grade debt obligations. This amount is known as initial
margin and is in the nature of a performance bond or good faith deposit on the
contract. The current initial deposit required per contract is approximately 5%
of the contract amount. Brokers may establish deposit requirements higher than
this minimum. Subsequent payments, called variation margin, will be made to and
from the account on a daily basis as the price of the futures contract
fluctuates. This process is known as marking to market.
6
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The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. In the case of a call, this amount will be equal to the amount by which
the market price of the futures contract at the time of exercise exceeds, or, in
the case of a put, is less than the exercise price of the option on the futures
contract. For more information regarding options, see below.
Although financial futures contracts by their terms call for actual delivery
or acceptance of securities, in most cases the contracts are closed out before
the settlement date without the making or taking of delivery. Closing out is
accomplished by effecting an offsetting transaction. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Phoenix-Goodwin Strategic Theme Series will pay commissions on financial
futures contracts and related options transactions. These commissions may be
higher than those which would apply to purchases and sales of securities
directly.
OPTIONS
PHOENIX-GOODWIN MONEY MARKET, PHOENIX-GOODWIN GROWTH, PHOENIX-GOODWIN
BALANCED, PHOENIX-ABERDEEN INTERNATIONAL, PHOENIX-GOODWIN MULTI-SECTOR FIXED
INCOME, PHOENIX-GOODWIN STRATEGIC ALLOCATION, PHOENIX-GOODWIN STRATEGIC THEME,
PHOENIX RESEARCH ENHANCED INDEX, PHOENIX-SENECA MID-CAP GROWTH, PHOENIX-OAKHURST
GROWTH AND INCOME, PHOENIX-HOLLISTER VALUE EQUITY AND PHOENIX-ABERDEEN NEW ASIA
SERIES:
Writing Covered Call Options. The Phoenix-Goodwin Multi-Sector Fixed Income,
Phoenix-Goodwin Money Market, Phoenix-Goodwin Growth, Phoenix-Goodwin Balanced,
Phoenix-Goodwin Strategic Allocation, Phoenix-Goodwin Strategic Theme, Phoenix
Research Enhanced Index, Phoenix-Aberdeen International, Phoenix-Seneca Mid-Cap
Growth, Phoenix-Oakhurst Growth and Income, Phoenix-Hollister Value Equity and
Phoenix-Aberdeen New Asia Series may write (sell) covered call options on
securities owned by them, including securities into which convertible securities
are convertible, provided that such call options are listed on a national
securities exchange.
A call option gives the holder the right to buy a security at a specified
price (the exercise price) for a stated period of time. Prior to the expiration
of the option, the seller of the option has an obligation to sell the underlying
security to the holder of the option at the original price specified regardless
of the market price of the security at the time the option is exercised. The
seller of the call option receives a cash payment (premium) at the time of sale,
which premium is retained by the seller whether or not the option is exercised.
The premium represents consideration to the seller for undertaking the
obligations under the option contract and thereby foregoing the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price (except insofar as the premium represents such a profit).
A call option may be purchased to terminate a call option previously
written. The premium paid in connection with the purchase of a call option may
be more than, equal to or less than the premium received upon writing the call
option which is being terminated.
When a Series writes a covered call option, an amount equal to the premium
received by it is included in assets of the Series offset by an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. Market value is the last
sale price of the options on the NYSE on which it is traded or, in absence of a
sale, the mean between last bid and offer prices. If an option which the Series
has written either expires or enters into a closing purchase transaction, the
Series realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was sold) without regard to any
unrealized gain or loss on the underlying security, and the liability related to
such option is extinguished.
In order to maintain its qualification as a regulated investment company
under Subchapter M of the Code, the Fund intends to limit gains from the sale of
securities held or deemed held for less than three months to less than 30% of
annual gross income. Accordingly, the Fund may be restricted in the selling of
securities which have been held less than three months, in the writing of
options on securities into which convertible securities are convertible, in the
writing of options on securities which have been held for six months or less, in
the writing of options which expire in less than three months and in purchasing
options to terminate options which it wrote within the preceding three months.
In this regard, the Fund can minimize the possibility of a suspended holding
period for purposes of the 30 percent rule to the extent the Fund limits its
covered call writing to options with more than 30 days to expiration that are
not "deep in the money" and that satisfy certain other requirements such that
they will constitute "qualified
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covered call options" as defined in Section 1092(c)(4)(B) of the Code, as
recently enacted.
An option is generally considered to be "in the money" if the striking price
under the option is less than the currently prevailing price of the stock
covered by the option so that there is a built-in discount or intrinsic value to
the option. Section 1092(c)(4) of the Internal Revenue Code sets forth complex
rules defining options which are "deep in the money." These rules vary in their
application depending upon the prevailing stock price and the stock price under
option contracts available in the market, but are designed to provide objective
rules to classify as "deep in the money" options those options whose primary
value is attributable to their built-in discount or intrinsic value.
Premium income earned with respect to a qualified covered call option
contract which lapses or experiences gain or loss from such an option contract
which is closed out (other than by exercise) generally will be short-term
capital gain or loss. Further, gain or loss with respect to the exercise of such
an option contract generally will be short-term or long-term depending upon the
actual or deemed holding period of the underlying security. However, any loss
realized from writing a "qualified covered call option" which has a strike price
that is less than the applicable security price as defined in Section
1092(c)(4)(G) of the Code will be treated as a long-term capital loss, if gain
from the sale of the underlying security at the time the loss is realized would
be long-term capital gain. Also, with respect to such options, the holding
period of the underlying security will not include any period during which the
Fund has an outstanding written option.
Buying Call and Put Options. The Phoenix-Goodwin Strategic Allocation,
Phoenix-Goodwin Balanced, Phoenix Research Enhanced Index, Phoenix-Hollister
Value Equity, Phoenix-Oakhurst Growth and Income, Phoenix-Seneca Mid-Cap Growth
and Phoenix-Goodwin Strategic Theme Series may buy national exchange-traded call
and put options on equity and debt securities and on various stock market
indexes. The Phoenix-Goodwin Money Market, Phoenix-Goodwin Growth and
Phoenix-Goodwin Multi-Sector Fixed Income Series may purchase a call option only
to terminate a call option previously written. (See "Writing Covered Call
Options" above for a description of call options.)
A put option on equity or debt securities gives the holder the right to sell
such a security at a specified price (the exercise price) for a stated period of
time. Prior to the expiration of the option, the seller of the option has an
obligation to buy the underlying security from the holder of the option at the
original price specified regardless of the market price of the security at the
time the option is exercised.
Call and put options on stock market indexes operate the same way as call
and put options on equity or debt securities except that they are settled in
cash. In effect, the holder of a call option on a stock market index has the
right to buy the value represented by the index at a specified price for a
stated period of time. Conversely, the holder of a put option on a stock market
index has the right to sell the value represented by the index for a specified
price for a stated period of time. To be settled in cash means that if the
option is exercised, the difference in the current value of the stock market
index and the exercise value must be paid in cash. For example, if a call option
was bought on the XYZ stock market index with an exercise price of $100
(assuming the current value of the index is 110 points, with each point equal to
$1.00), the holder of the call option could exercise the option and receive $10
(110 points minus 100 points) from the seller of the option. If the index equals
90 points, the holder of the option receives nothing.
The seller of an option receives a cash payment (premium) at the time of
sale, which premium is retained by the seller whether or not the option is
exercised. The premium represents consideration to the seller for undertaking
the obligation under the option contract. In the case of call options, the
premium compensates the seller for the loss of the opportunity to profit from
any increase in the value of the security or the index. The premium to a seller
of a put option compensates the seller for the risk assumed in connection with a
decline in the value of the security or index.
A Series may close an open call or put option position by selling a call
option, in the case of an open call position, or a put option, in the case of an
open put option, which is the same as the option being closed. The Series will
receive a premium for selling such an option. The premium received may be more
than, equal to or less than the premium paid by the Series when it bought the
option which is being closed.
Immediately after entering into an opening option position the total value
of all open option positions based on exercise price will not exceed ten percent
(10%) of the Phoenix-Goodwin Strategic Allocation or Phoenix-Goodwin Balanced
Series' total assets. The premium paid by the Series for the purchase of a call
or a put option and the expiration or closing sale transaction with respect to
such options are treated in a manner analogous to that described above, except
there is no liability created to the Series. The premium paid for any such
option is included in assets and marked to the market value on a current basis.
If the options expire, the Series will realize a short-term loss on the amount
of the cost of the option. If a purchased put or call option is closed out by
the Series entering into a closing sale transaction, the Series will realize a
short-term gain or loss, depending upon whether the sale proceeds from the
closing sale transaction are greater or less than the cost of the put or call
option.
PHOENIX-ABERDEEN INTERNATIONAL, PHOENIX-GOODWIN STRATEGIC THEME, PHOENIX
RESEARCH ENHANCED INDEX, PHOENIX-SENECA MID-CAP GROWTH, PHOENIX-HOLLISTER
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VALUE EQUITY, PHOENIX-OAKHURST GROWTH AND INCOME AND PHOENIX-ABERDEEN NEW ASIA
SERIES:
To promote their objectives, the Phoenix-Aberdeen International,
Phoenix-Goodwin Strategic Theme, Phoenix Research Enhanced Index, Phoenix-Seneca
Mid-Cap Growth, Phoenix-Hollister Value Equity, Phoenix-Oakhurst Growth and
Income and Phoenix-Aberdeen New Asia Series may write covered call options and
purchase call and put options on securities. In addition, the Series may write
secured put options and enter into option transactions on foreign currency.
Writing (Selling) Call and Put Options. A call option on a security or a
foreign currency gives the purchaser of the option, in return for the premium
paid to the writer (seller), the right to buy the underlying security or foreign
currency at the exercise price at any time during the option period. Upon
exercise by the purchaser, the writer of a call option has the obligation to
sell the underlying security or foreign security, except that the value of the
option depends on the weighted value of the group of securities comprising the
index and all settlements are made in cash. A call option may be terminated by
the writer (seller) by entering into a closing purchase transaction in which it
purchases an option of the same series as the option previously written.
A put option on a security or foreign currency gives the purchaser of the
option, in return for the premium paid to the writer (seller), the right to sell
the underlying security or foreign currency at the exercise price at any time
during the option period. Upon exercise by the purchaser, the writer of a put
option has the obligation to purchase the underlying security or foreign
currency at the exercise price. A put option on a securities index is similar to
a put option on an individual security, except that the value of the options
depends on the weighted value of the group of securities comprising the index
and all settlements are made in cash.
The Series may write exchange-traded call options on its securities. Call
options may be written on portfolio securities and on securities indices and on
foreign currencies. The Series may, with respect to securities and foreign
currencies, write call and put options on an exchange or over the counter. Call
options on portfolio securities will be covered since the Series will own the
underlying securities or other securities that are acceptable for escrow at all
times during the option period. Call options on securities indices will be
written only to hedge in an economically appropriate way portfolio securities
which are not otherwise hedged with options or financial futures contracts and
will be "covered" by identifying the specific portfolio securities being hedged.
Call options on foreign currencies and put options on securities and foreign
currencies will be covered by securities acceptable for escrow. The Series may
not write options on more than 50% of its total assets. Management presently
intends to cease writing options if and as long as 25% of such total assets are
subject to outstanding options contract.
The Series will write call and put options in order to obtain a return on
its investments from the premiums received and will retain the premiums whether
or not the options are exercised. Any decline in the market value of portfolio
securities or foreign currencies will be offset to the extent of the premiums
received (net of transaction costs). If an option is exercised, the premium
received on the option will effectively increase the exercise price or reduce
the difference between the exercise price and market value.
During the option period, the writer of a call option gives up the
opportunity for appreciation in the market value of the underlying security or
currency above the exercise price. It retains the risk of loss should the price
of the underlying security or foreign currency decline. Writing call options
also involves risks relating to the Series' ability to close out options it has
written.
During the option period, the writer of a put option has assumed the risk
that the price of the underlying security or foreign currency will decline below
the exercise price. However, the writer of the put option has retained the
opportunity for any appreciation above the exercise price should the market
price of the underlying security or foreign currency increase. Writing put
options also involves risks relating to a Portfolio's ability to close out
options it has written.
Purchasing Call and Put Options, Warrants and Stock Rights. The
Phoenix-Aberdeen International, Phoenix-Goodwin Strategic Theme, Phoenix
Research Enhanced Index, Phoenix-Oakhurst Growth and Income and Phoenix-Aberdeen
New Asia Series may invest up to an aggregate of 5% of its total assets in
exchange-traded or over-the-counter call and put options on securities and
securities indices and foreign currencies. Purchases of such options may be made
for the purpose of hedging against changes in the market value of the underlying
securities or foreign currencies. The Series will invest in call and put options
whenever, in the opinion of the Adviser or Subadviser, a hedging transaction is
consistent with its investment objectives. The Series may sell a call option or
a put option which it has previously purchased prior to the purchase (in the
case of a call) or the sale (in the case of a put) of the underlying security or
foreign currency. Any such sale would result in a net gain or loss depending on
whether the amount received on the sale is more or less than the premium and
other transaction costs paid on the call or put which is sold. Purchasing a call
or put option involves the risk that the Series may lose the premium it paid
plus transaction costs.
Warrants and stock rights are almost identical to call options in their
nature, use and effect except that they are issued by the issuer of the
underlying security, rather than an option writer, and they generally have
longer expiration dates than call options. The Phoenix-Aberdeen International,
Phoenix-Goodwin Strategic Theme, Phoenix Research Enhanced Index,
Phoenix-Oakhurst Growth and
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Income and Phoenix-Aberdeen New Asia Series intend to invest up to 5% of their
respective net assets in warrants and stock rights, but no more than 2% of its
net assets in warrants and stock rights not listed on the NYSE or the American
Stock Exchange.
Over-the-Counter ("OTC") Options. OTC options differ from exchange-traded
options in several respects. They are transacted directly with dealers and not
with a clearing corporation, and there is a risk of non-performance by the
dealer. However, the premium is paid in advance by the dealer. OTC options are
available for a greater variety of securities and foreign currencies, and in a
wider range of expiration dates and exercise prices than exchange-traded
options. Since there is no exchange, pricing is normally done by reference to
information from a market maker, which information is carefully monitored or
caused to be monitored by the Adviser or Subadviser and verified in appropriate
cases.
A writer or purchaser of a put or call option can terminate it voluntarily
only by entering into a closing transaction. In the case of OTC options, there
can be no assurance that a continuous liquid secondary market will exist for any
particular option at any specific time. Consequently, the Phoenix-Aberdeen
International Series may be able to realize the value of an OTC option it has
purchased only by exercising it or entering into a closing sale transaction with
the dealer that issued it. Similarly, when the Series writes an OTC option, it
generally can close out that option prior to its expiration only by entering
into a closing purchase transaction with the dealer to which it originally wrote
the option. If a covered call option writer cannot effect a closing transaction,
it cannot sell the underlying security or foreign currency until the option
expires or the option is exercised. Therefore, the writer of a covered OTC call
option may not be able to sell an underlying security even though it otherwise
might be advantageous to do so. Likewise, the writer of a secured OTC put option
may be unable to sell the securities pledged to secure the put for other
investment purposes while it is obligated as a put writer. Similarly, a
purchaser of an OTC put or call option also might find it difficult to terminate
its position on a timely basis in the absence of a secondary market.
The Fund understands the position of the staff of the Securities and
Exchange Commission ("SEC") to be that purchased OTC options and the assets used
as "cover" for written OTC options are illiquid securities. Although the
Subadviser has found that dealers with which they will engage in OTC options
transactions are generally agreeable to and capable of entering into closing
transactions, the Fund has adopted procedures for engaging in OTC options
transactions for the purpose of reducing any potential adverse effect of such
transactions upon the liquidity of the Phoenix-Aberdeen International Series.
The Fund will engage in OTC options transactions only with dealers that meet
certain credit and other criteria established by the Board of Trustees of the
Fund. The Fund and the Adviser believe that the approved dealers present minimal
credit risks to the Fund and, therefore, should be able to enter into closing
transactions if necessary. The Fund currently will not engage in OTC options
transactions if the amount invested by the Fund in OTC options, plus a
"liquidity charge" related to OTC options written by the Fund in illiquid
securities plus any other portfolio securities considered to be illiquid, would
exceed 10% of the Fund's total assets. The "liquidity charge" referred to above
is computed as described below.
The Fund anticipates entering into agreements with dealers to which the Fund
sells OTC options. Under these agreements the Fund would have the absolute right
to repurchase the OTC options from the dealer at any time at a price no greater
than a price established under the agreements (the "Repurchase Price"). The
"liquidity charge" referred to above for a specific OTC option transaction will
be the Repurchase Price related to the OTC option less the intrinsic value of
the OTC option. The intrinsic value of an OTC call option for such purposes will
be the amount by which the current market value of the underlying security
exceeds the exercise price. In the case of an OTC put option, intrinsic value
will be the amount by which the exercise price exceeds the current market value
of the underlying security. If there is no such agreement requiring a dealer to
allow the Fund to repurchase a specific OTC option written by the Fund, the
"liquidity charge" will be the current market value of the assets serving as
"cover" for such OTC option.
FOREIGN SECURITIES
The Phoenix-Aberdeen International and Phoenix-Aberdeen New Asia Series will
purchase foreign securities as discussed above. In addition, the other Series
may invest up to 25% (up to 35% for the Phoenix-Goodwin Strategic Theme Series,
20% for the Phoenix-Seneca Mid-Cap Growth and Phoenix-Schafer Mid-Cap Value
Series and typically less than 5% for the Phoenix-Engemann Nifty Fifty Series)
of total net asset value in foreign securities. The Phoenix-Goodwin Multi-Sector
Fixed Income Series may invest up to 50% of total net asset value in foreign
debt securities. The Series, other than the Phoenix-Aberdeen International,
Phoenix-Goodwin Strategic Theme, Phoenix-Goodwin Multi-Sector Fixed Income and
Phoenix-Aberdeen New Asia Series, will purchase foreign debt securities only if
issued in U.S. dollar denominations. The Phoenix Research Enhanced Index Series
may invest in securities of foreign corporations, provided that such securities
are included in the S&P 500 or traded on a U.S. exchange.
The foreign debt securities in which the Series may invest are issued by
foreign issuers in developed countries
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considered creditworthy by the Adviser and in so-called emerging market
countries. The Series will invest in government obligations supported by the
authority to levy taxes sufficient to ensure the payment of all principal and
interest due on such obligations. Because foreign government obligations, like
U.S. government obligations, are generally guaranteed as to principal and
interest by the government issuing the security, the principal risk of investing
in foreign government obligations is that the foreign government will not or
will be unable to, meet its obligations. The Series also may purchase securities
of nongovernmental issuers considered creditworthy by the Adviser.
While the Phoenix-Aberdeen International, Phoenix-Goodwin Strategic Theme,
Phoenix-Goodwin Multi-Sector Fixed Income and Phoenix-Aberdeen New Asia Series
may purchase foreign debt securities denominated in foreign currencies
("non-U.S. dollar securities"), the amount invested in such non-U.S. dollar
securities may vary depending on the relative yield of such securities, the
relative strength of the economies and the financial markets of such countries,
the relative interest rates available in such countries and the relationship of
such countries' currencies to the U.S. dollar. Investments in non-U.S. dollar
securities and currency will be evaluated on the basis if fundamental economic
criteria (e.g., relative inflation levels and trends, growth rate forecasts,
balance of payments status, and economic policies) as well as technical and
political data.
FOREIGN CURRENCY TRANSACTIONS
For each Series investing in foreign securities, the value of the assets of
such Series as measured in United States dollars may be affected favorably or
unfavorably by changes in foreign currency exchange rates and exchange control
regulations, and a Series may incur costs in connection with conversions between
various currencies. A Series will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
traded directly between currency traders (usually large commercial banks) and
their customers. At the time of the purchase of a forward foreign currency
exchange contract, any asset, including equity securities and non-investment
grade debt so long as the asset is liquid, unencumbered and marked to market
daily equal to the market value of the contract, minus the Series' initial
margin deposit with respect thereto, will be deposited in a segregated account
with the Fund's custodian bank to collateralize fully the position and thereby
ensure that it is not leveraged.
When a Series enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may want to establish the United States
dollar cost or proceeds, as the case may be. By entering into a forward contract
in United States dollars for the purchase or sale of the amount of foreign
currency involved in the underlying security transaction, a Series is able to
protect itself against a possible loss between trade and settlement dates
resulting from an adverse change in the relationship between the United States
dollar and such foreign currency. However, this tends to limit potential gains
which might result from a positive change in such currency relationships. The
Phoenix-Aberdeen International and Phoenix-Aberdeen New Asia Series also may
hedge their foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
When the Adviser believes that the currency of a particular foreign country
may suffer a substantial decline against the United States dollar, it may enter
into a forward contract to sell an amount of foreign currency approximating the
value of some or all of a Series' portfolio securities denominated in such
foreign currency. The forecasting of short-term currency market movement is
extremely difficult and whether such a short-term hedging strategy will be
successful is highly uncertain.
It is impossible to forecast with precision the market value of portfolio
securities at the expiration of a contract. Accordingly, it may be necessary for
a Series to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Series is obligated to deliver when a decision is
made to sell the security and make delivery of the foreign currency in
settlement of a forward contract. Conversely, it may be necessary to sell on the
spot market some of the foreign currency received upon the sale of the portfolio
security if its market value exceeds the amount of foreign currency the Series
is obligated to deliver.
If the Series retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or a loss (as described below) to the extent
that there has been movement in forward contract prices. If the Series engages
in an offsetting transaction, it may subsequently enter into a new forward
contract to sell the foreign currency. Should forward prices decline during the
period between the Series' entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, the Series would realize gain to the extent
the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Series
would suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell. Although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, they also tend to limit any potential gain which
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might result should the value of such currency increase. The Series will have to
convert holdings of foreign currencies into United States dollars from time to
time. Although foreign exchange dealers do not charge a fee for conversion, they
do realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies.
ZERO AND DEFERRED COUPON DEBT SECURITIES
The Phoenix-Goodwin Multi-Sector Fixed Income and Phoenix-Seneca Mid-Cap
Growth Series may invest in debt obligations that do not make any interest
payments for a specified period of time prior to maturity ("deferred coupon"
obligations) or until maturity ("zero coupon" obligations). Because deferred and
zero coupon bonds do not make interest payments for a certain period of time,
they are purchased by the Series at a deep discount and their value fluctuates
more in response to interest rate changes than does the value of debt
obligations that make current interest payments. The degree of fluctuation with
interest rate changes is greater when the deferred period is longer. Therefore,
there is a risk that the value of the Series' shares may decline more as a
result of an increase in interest rates than would be the case if the Series did
not invest in deferred or zero coupon bonds.
REAL ESTATE INVESTMENT TRUSTS
As described in the Prospectus, the Phoenix-Duff & Phelps Real Estate
Securities Series intends under normal conditions to invest in real estate
investment trusts ("REITs"). REITs pool investors' funds for investment
primarily in income-producing commercial real estate or real estate related
loans. A REIT is not taxed on income distributed to shareholders if it complies
with several requirements relating to its organization, ownership, assets and
income, and a requirement that it distribute to its shareholders at least 95% of
its taxable income (other than net capital gains) for each taxable year.
REITs generally can be classified as follows:
[diamond] Equity REITs, which invest the majority of their assets directly in
real property and derive their income primarily from rents. Equity
REITs can also realize capital gains by selling properties that have
appreciated in value.
[diamond] Mortgage REITs, which invest the majority of their assets in real
estate mortgages and derive their income primarily from interest
payments.
[diamond] Hybrid REITs, which combine the characteristics of both equity REITs
and mortgage REITs.
REITs are like closed-end investment companies in that they are essentially
holding companies which rely on professional managers to supervise their
investments. A shareholder in the Phoenix-Duff & Phelps Real Estate Securities
Series should realize that by investing in REITs indirectly through the Series,
he will bear not only his proportionate share of the expenses of the Series but
also, indirectly, similar expenses of underlying REITs.
DEBT SECURITIES
Up to 25% of the Phoenix-Duff & Phelps Real Estate Securities Series total
assets may be invested in debt securities (which include for purposes of this
investment policy convertible debt securities which PRS believes have attractive
equity characteristics). The Phoenix-Duff & Phelps Real Estate Securities Series
may invest in debt securities rated BBB or better by S&P or Baa or better by
Moody's or, if not rated, are judged to be of comparable quality as determined
by PRS. In choosing debt securities for purchase by the Portfolio, PRS will
employ the same analytical and valuation techniques utilized in managing the
equity portion of the Phoenix-Duff & Phelps Real Estate Securities Series
holdings (see "Investment Advisory and Other Services") and will invest in debt
securities only of companies that satisfy PRS' investment criteria.
The value of the Phoenix-Duff & Phelps Real Estate Securities Series
investments in debt securities will change as interest rates fluctuate. When
interest rates decline, the values of such securities generally can be expected
to increase, and when interest rates rise, the values of such securities
generally can be expected to decrease. The lower-rated and comparable unrated
debt securities described above are subject to greater risks of loss of income
and principal than are higher-rated fixed income securities. The market value of
lower-rated securities generally tends to reflect the market's perception of the
creditworthiness of the issuer and short-term market developments to a greater
extent than is the case with more highly rated securities, which reflect
primarily functions in general levels of interest rates.
CONVERTIBLE SECURITIES
Each Series may invest in convertible securities. A convertible security is
a bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specific price or
formula. A convertible security entitles the holder to receive interest
generally paid or accrued on debt or the dividend paid on preferred stock until
the convertible security matures or is redeemed, converted or exchanged.
Convertible securities have several unique investment characteristics such as
(1) higher yields than common stocks, but lower yields than comparable
nonconvertible securities, (2) a lesser degree of fluctuation in value then the
underlying stock since they have fixed income characteristics and (3) the
potential for capital appreciation if the market price of the underlying common
stock increases. Up to 5% of each Series' assets may be invested in convertible
securities that are rated below investment grade (commonly referred to as "junk"
securities). Such securities present greater credit and market risks than
investment grade securities. A convertible security
12
might be subject to redemption at the option of the issuer at a price
established in the convertible security's governing instrument. If a convertible
security held by a Series is called for redemption, the Series may be required
to permit the issuer to redeem the security, convert it into the underlying
common stock or sell it to a third party.
REPURCHASE AGREEMENTS
The Phoenix-Goodwin Money Market, Phoenix-Duff & Phelps Real Estate
Securities, Phoenix-Aberdeen International, Phoenix-Goodwin Strategic Theme,
Phoenix Research Enhanced Index, Phoenix-Engemann Nifty Fifty, Phoenix-Seneca
Mid-Cap Growth, Phoenix-Schafer Mid-Cap Value, Phoenix-Oakhurst Growth and
Income, Phoenix-Hollister Value Equity and Phoenix-Aberdeen New Asia Series may
invest in repurchase agreements. However, no more than 10& of a Series' net
assets will be invested in repurchase agreements having maturities of more than
seven days. A repurchase agreement is a transaction where a Series buys a
security at one price and the seller simultaneously agrees to buy that same
security back at a higher price. Repurchase agreements will be entered into with
commercial banks, brokers and dealers considered by the Board of Trustees and
the Adviser, acting at the Board's direction, to be creditworthy. In addition,
the repurchase agreements are fully collateralized by the underlying instrument
and are marked to market every business day. However, the use of repurchase
agreements involves certain risks such as default by, or insolvency of, the
other party to the transaction.
JUNK BONDS
The Phoenix-Goodwin Multi-Sector Fixed Income, Phoenix-Aberdeen
International and Phoenix-Goodwin Strategic Allocation Series may invest up to
50%, 10% and 5%, respectively, of total net assets in noninvestment grade debt
securities. The market prices of such lower-rated securities generally fluctuate
in response to changes in interest rates and economic conditions more than those
of higher-rated securities. Additionally, there is a greater possibility that an
adverse change in the financial condition of an issuer, particularly a higher
leveraged issuer, may affect its ability to make payments of income and
principal and increase the expenses of the Series seeking recovery from the
issuer. Lower-rated securities may be thinly traded and less liquid than
higher-rated securities and therefore harder to value and more susceptible to
adverse publicity concerning the issuer. A more detailed description of the
risks associated with High Yield-High Risk Securities appears under
"Phoenix-Goodwin Multi-Sector Fixed Income Series - Risk Factors" in the
Prospectus.
REAL ESTATE SECURITIES
The Phoenix-Duff & Phelps Real Estate Securities Series will not invest in
real estate directly, but only in securities issued by real estate companies.
However, the Portfolio may be subject to risks similar to those associated with
the direct ownership of real estate because of its policy of concentrating in
the securities of companies in the real estate industry. These include declines
in the value of real estate, risks related to general and local economic
conditions, dependence on management skill, cash flow dependence, possible lack
of availability of long-term mortgage funds, over-building, extended vacancies
of properties, decreased occupancy rates and increased competition, increases in
property taxes and operating expenses, changes in neighborhood values and the
appeal of the properties to tenants and changes in interest rates.
Selecting REITs requires an evaluation of the merits of each type of asset a
particular REIT owns, as well as regional and local economics. Due to the
proliferation of REITs in recent years and the relative lack of sophistication
of certain REIT managers, the quality of REIT assets has varied significantly.
In addition to these risks, equity REITs may be affected by changes in the
value of the underlying properties owned by the trusts, while mortgage REITs may
be affected by the quality of any credit extended. Further, equity and mortgage
REITs are dependent upon management skills and generally are not diversified.
Equity and mortgage REITs also are subject to potential defaults by borrowers,
self-liquidation and the possibility of failing to qualify for tax-free status
of income under the Code and failing to maintain exemption from the Investment
Company Act of 1940. In the event of a default by a borrower or lessee, the REIT
may experience delays in enforcing its rights as a mortgagee or lessor and may
incur substantial costs associated with protecting its investments. In addition,
investment in REITs could cause the Series to possibly fail to qualify as a
regulated investment company.
EMERGING MARKET SECURITIES
The Phoenix-Aberdeen New Asia Series may invest in countries or regions with
relatively low gross national product per capita compared to the world's major
economies, and in countries or regions with the potential for rapid economic
growth (emerging markets). Emerging markets in Asia will include countries: (i)
having an "emerging stock market" as defined by the International Finance
Corporation; (ii) with low- to middle-income economies according to the
International Bank for Reconstruction and Development (the "World Bank"); (iii)
listed in World Bank publications as developing; or (iv) determined by the
Adviser to be an emerging market as defined above. The Series also may invest in
securities of: (i) companies where the principal securities trading market is an
emerging market country; (ii) companies organized under the laws of, and with a
principal office in, an emerging market country; or (iii) companies whose
principal activities are located in emerging market countries.
The risks of investing in foreign securities may be intensified in the case
of investments in emerging markets.
13
<PAGE>
Securities of many issuers in emerging markets may be less liquid and more
volatile than securities of comparable domestic issuers. Emerging markets also
have different clearance and settlement procedures, and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of the Series is uninvested and no return is earned thereon. The
inability of the Series to make intended security purchases due to settlement
problems could cause the Series to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Series due to subsequent declines in value of the
portfolio securities or, if the Series has entered into a contract to sell the
security, in possible liability to the purchaser. Securities prices in emerging
markets can be significantly more volatile than in the more developed nations of
the world, reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership or prohibitions of repatriation of
assets, and may have less protection of property rights than more developed
countries. The economies of countries with emerging markets may be predominantly
based on only a few industries, may be highly vulnerable to changes in local or
global trade conditions, and may suffer from extreme and volatile debt burdens
or inflation rates. Local securities markets may trade a small number of
securities and may be unable to respond effectively to increases in trading
volume, potentially making prompt liquidation of substantial holdings difficult
or impossible at times. Securities of issuers located in countries with emerging
markets may have limited marketability and may be subject to more abrupt or
erratic price movements.
Certain emerging markets may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The Series could
be adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Series of any restrictions on investments. Investments in certain foreign
emerging market debt obligations may be restricted or controlled to varying
degrees. These restrictions or controls may at times preclude investment in
certain foreign emerging market debt obligations and increase the expenses of
the Series.
Additional Risk Factors. As a result of its investments in foreign
securities, the Series may receive interest or dividend payments, or the
proceeds of the sale or redemption of such securities, in the foreign currencies
in which such securities are denominated. In that event, the Series may convert
such currencies into dollars at the then current exchange rate. Under certain
circumstances, however, such as where the Adviser believes that the applicable
rate is unfavorable at the time the currencies are received or the Adviser
anticipates, for any other reason, that the NYSE rate will improve, the Series
may hold such currencies for an indefinite period of time.
In addition, the Series may be required to receive delivery of the foreign
currency underlying forward foreign currency contracts into which it has
entered. This could occur, for example, if an option written by the Fund is
exercised or the Fund is unable to close out a forward contract. The Series may
hold foreign currency in anticipation of purchasing foreign securities. The
Series also may elect to take delivery of the currencies underlying options or
forward contracts if, in the judgment of the Adviser, it is in the best interest
of the Series to do so. In such instances as well, the Series may convert the
foreign currencies to dollars at the then current exchange rate, or may hold
such currencies for an indefinite period of time.
While the holding of currencies will permit the Series to take advantage of
favorable movements in the applicable exchange rate, it also exposes the Series
to risk of loss if such rates move in a direction adverse to the Series'
position. Such losses could reduce any profits or increase any losses sustained
by the Series from the sale or redemption of securities, and could reduce the
dollar value of interest or dividend payments received. In addition, the holding
of currencies could adversely affect the Series' profit or loss on currency
options or forward contracts, as well as its hedging strategies.
LEVERAGE
The Phoenix-Goodwin Strategic Theme, Phoenix-Hollister Value Equity,
Phoenix-Seneca Mid-Cap Growth and Phoenix Research Enhanced Index Series may,
from time to time, increase their ownership of securities holdings above the
amounts otherwise possible by borrowing from banks at fixed amounts of interests
and investing the borrowed funds. The Fund will borrow only from banks, and only
if immediately after such borrowing the value of the assets of the Series
(including the amount borrowed), less its liabilities (not including any
borrowings) is at least three times the amount of funds borrowed for investment
purposes. The Fund may borrow up to 25% of the net assets of such Series, not
including the proceeds of any such borrowings. However, the amount of the
borrowings will be dependent upon the availability and cost of credit from time
to time, If, due to market fluctuations or other reasons, the value of such
Series' assets computed as provided above become less than three times the
amount of the borrowings for investment purposes, the Fund, within three
business days, is required to reduce bank debt to the extent necessary to meet
the required 300% asset coverage.
14
<PAGE>
Interest on money borrowed will be an expense of those Series with respect
to which the borrowing has been made. Because such expense otherwise would not
be incurred, the net investment income of such Series is not expected to be as
high as it otherwise would be during periods when borrowings for investment
purposes are substantial.
Bank borrowings for investment purposes must be obtained on an unsecured
basis. Any such borrowing also must be made subject to an agreement by the
lender that any recourse is limited to the assets of such Series with respect to
which the borrowing has been made.
An investment gains made with the additional monies borrowed in excess of
interest paid will cause the net assets value of such Series shares to rise
faster than otherwise would be the case. On the other hand, if the investment
performance of the additional securities purchased fails to cover its cost
(including any interest paid on the monies borrowed) to such Series, the net
asset value of the Series will decrease faster than otherwise would be the case.
Phoenix-Schafer Mid-Cap Value, Phoenix-Oakhurst Growth and Income and
Phoenix-Engemann Nifty Fifty Series may not borrow except for emergency or other
extraordinary purposes, only from a bank, and only in an amount not to exceed 5%
of the Series' total assets (33 1/3% in the case of Phoenix-Oakhurst Growth and
Income Series). Phoenix-Oakhurst Growth and Income and Phoenix-Engemann Nifty
Fifty Series must also maintain a 300% asset coverage ratio. Phoenix-Schafer
Mid-Cap Value Series may collateralize any such borrowings with up to 10% of its
total assets; Phoenix-Oakhurst Growth and Income Series may collateralize any
such borrowing with up to 33 1/3% of its total assets.
PRIVATE PLACEMENTS AND RULE 144A SECURITIES
Each Series may purchase securities which have been privately issued and are
subject to legal restrictions on resale or which are issued to qualified
institutional investors under special rules adopted by the SEC. Such securities
may offer higher yields than comparable publicly traded securities. Such
securities ordinarily can be sold by the Series in secondary market transactions
to certain qualified investors pursuant to rules established by the SEC, in
privately negotiated transactions to a limited number of purchasers or in a
public offering made pursuant to an effective registration statement under the
Securities Act of 1933, ads amended (the "1933 Act"). Public sales of such
securities by the Fund may involve significant delays and expense. Private sales
often require negotiation with one or more purchasers and may produce less
favorable prices than the sale of similar unrestricted securities. Public sales
generally involve the time and expense of the preparation and processing of a
registration statement under the 1933 Act (and the possible decline in value of
the securities during such period) and may involve the payment of underwriting
commissions. In some instances, the Series may have to bear certain costs of
registration in order to sell such shares publicly. Except in the case of
securities sold to qualifying institutional investors under special rules
adopted by the SEC for which the Trustees determine the secondary market is
liquid, Rule 144A Securities will be considered illiquid. Trustees may determine
the secondary market is liquid based upon the following factors which will be
reviewed periodically as required pursuant to procedures adopted by the Series:
the number of dealers willing to purchase or sell the security; the frequency of
trades; dealer undertakings to make a market in the security; and the nature of
the security and its market. Investing in Rule 144A Securities could have the
effect of increasing the level of these Series, illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. Each Series may invest up to 15% of its net assets in illiquid
securities.
MORTGAGE-BACKED SECURITIES
The Phoenix-Goodwin Multi-Sector Fixed Income, Phoenix-Duff & Phelps Real
Estate Securities and Phoenix-Seneca Mid-Cap Growth Series also may invest in
mortgage-backed securities such as mortgage pass-through certificates, real
estate mortgage investment conduit ("REMIC") certificates and collateraized
mortgage obligations ("CMOs"). CMOs are hybrid instruments with characteristics
of both mortgage-backed and mortgage pass-through securities. Similar to a bond,
interest and prepaid principal on a CMO are paid, in most cases, semiannually.
CMOs may be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
Government National Mortgage Association (GNMA), for Federal National Mortgage
Association. CMOs are structured into multiple classes, with each class bearing
a different stated maturity. Monthly payments of principal, including
prepayments, are first returned to investors holding the shortest maturity
class; investors holding the longer maturity classes receive principal only
after the first class has been retired. REMICs are similar to CMOs and are fixed
pools of mortgages with multiple classes of interests held by investors.
The Series also may invest in pass-through securities that are derived from
mortgages. A pass-through security is formed when mortgages are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgages is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments (net of a service fee).
The Series may purchase pass-through securities at a premium or at a
discount. The value of pass-through securities in which the Series may invest
will fluctuate with changes in interest rates The value of such securities
varies inversely with interest rates, except that when interest rates decline,
the value of pass-through securities may not increase as much as other debt
securities because of the prepayment feature. Changes in the value of such
securities
15
<PAGE>
will not affect interest income from those obligations but will be reflected in
the Series' net asset value.
A particular risk associated with pass-through securities involves the
volatility of prices in response to changes in interest rates or prepayment
risk. Prepayment rates are important because of their effect on the yield and
price of securities. Prepayments occur when the holder of an individual mortgage
prepays the remaining principal before the mortgages' scheduled maturity date.
As a results of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Although the
pattern of repayments is estimated and reflected in the price paid for
pass-through securities at the time of purchase, the actual prepayment behavior
of mortgages cannot be known at that time. Therefore, it is not possible to
predict accurately the realized yield or average life of a particular issue of
pass-through securities Prepayments that occur faster then estimated adversely
affect yields for pass-throughs purchased at a premium (that is, a price in
excess of principal amount) and may cause a loss of principal because the
premium may not have been fully amortized at the time the obligation is repaid.
The opposite is true for pass-throughs purchased at a discount. Furthermore, the
proceeds from prepayments usually are reinvested at current market rates, which
may be higher than, but usually are lower than, the rates earned on the original
pass-through securities. Prepayments on a pool of mortgage loans are influenced
by a variety of economic, geographic, social and other factors, including
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. Generally,
however, prepayments on fixed rate mortgage loans will increase during a period
of falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed securities may decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities or
decline in value from declining interest rates because of risk of prepayment.
Pass-through securities are forms of derivatives.
LENDING OF PORTFOLIO SECURITIES
Subject to certain investment restrictions, a Series (other than
Phoenix-Engemann Nifty Fifty Series) may, from time to time, lend securities
from its portfolio to brokers, dealers and financial institutions deemed
creditworthy and receive, as collateral, cash or cash equivalents which at all
times while the loan is outstanding will be maintained in amounts equal to at
least 100% (except the Phoenix-Aberdeen New Asia Series which will maintain an
amount equal to at least 102%) of the current market value of the loaned
securities. Any cash collateral will be invested in short-term securities which
will increase the current income of the Series lending its securities. A Series
will have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights and subscription rights. While a
securities loan is outstanding, the Series is to receive an amount equal to any
dividends, interest or other distributions with respect to the loaned
securities. A Series may pay reasonable fees to persons unaffiliated with the
Fund for services in arranging such loans.
Even though securities lending usually does not impose market risks on the
lending Series, a Series would be subject to risk of loss due to an increase in
value if the borrower fails to return the borrowed securities for any reason
(such as the borrower's insolvency). Moreover, if the borrower of the securities
is insolvent, under current bankruptcy law, a Series could be ordered by a court
not to liquidate the collateral for an indeterminate period of time. If the
borrower is the subject of insolvency proceedings and the collateral held may
not be liquidated, the result could be a material adverse impact on the
liquidity of the lending Series.
WHEN-ISSUED SECURITIES
The Phoenix Research Enhanced Index and Phoenix-Seneca Mid-Cap Growth Series
may purchase securities on a when-issued basis. New issues of certain securities
are offered on a when-issued basis, that is, delivery and payment for the
securities normally takes place 15 to 45 days or more after the date of the
commitment to purchase. The payment obligation and the interest rate, if any,
that will be received on the securities are each fixed at the time the buyer
enters into the commitment. The Series will generally make a commitment to
purchase such securities with the intention of actually acquiring the
securities. However, the Series may sell these securities before the settlement
date if it is deemed advisable as a matter of investment strategy. When the
Series purchases securities on a when-issued basis, cash or liquid high quality
debt securities equal in value to commitments for the when-issued securities
will be deposited in a segregated account with the Series' custodian bank. Such
segregated securities either will mature or, if necessary, be sold on or before
the settlement date.
Securities purchased on a when-issued basis are subject to changes in market
value. Therefore, to the extent the Series remains substantially fully invested
at the same time that they have purchased securities on a when-issued basis,
there will be greater fluctuations in the net asset values than if the Series
merely set aside cash to pay for when-issued securities. In addition, there will
be a greater potential for the realization of capital gains. When the time comes
to pay for when-issued securities, the Series will meet its obligations from
then available cash flow, the sales of securities or, although it would not
normally expect to do so, from the sale of the when-issued securities themselves
(which may have a value greater or less than the payment obligation). Lastly,
investing in when-issued securities includes the risk that the securities may
never be issued, in which event the Series may incur expenses associated with
unwinding such transactions.
16
<PAGE>
INDUSTRY CLASSIFICATIONS
For the purposes of establishing industry classifications for the
Phoenix-Goodwin Strategic Theme Series, the Adviser utilizes the William O'Neil
& Co., Inc. Industry Group Index. The William O'Neil & Co., Inc. Industry Group
Index is presently comprised of 197 industry classifications. Classifications
are determined based on the following broad sectors: Basic Material, Energy,
Capital Equipment, Technology, Consumer Cyclical, Retail, Consumer Staple,
Health Care, Transportation, Financial and Utilities. Sectors are then divided
into industry groups based upon income sources and other economically relevant
criteria as determined by O'Neil & Co., Inc.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's fundamental policies as they affect any Series cannot be changed
without the approval of a vote of a majority of the outstanding shares of such
Series, which is the lesser of (i) 67% or more of the voting securities of such
Series present at a meeting if the holders of more than 50% of the outstanding
voting securities of such Series are present or represented by proxy or (ii)
more than 50% of the outstanding voting securities of such Series. A proposed
change in fundamental policy or investment objective will be deemed to have been
effectively acted upon by any Series if a majority of the outstanding voting
securities of that Series votes for the approval of the proposal as provided
above, notwithstanding (1) that such matter has not been approved by a majority
of the outstanding securities of any other Series affected by such matter and
(2) that such matter has not been approved by a majority of the outstanding
voting securities of the Fund.
The following investment restrictions are fundamental policies of the Fund
with respect to all Series and may not be changed except as described above. The
Fund may not:
(1) Purchase real estate or any interest therein, except through the
purchase of corporate or certain government securities (including
securities secured by a mortgage or a leasehold interest or other
interest in real estate). A security issued by a real estate or
mortgage investment trust is not treated as an interest in real estate.
The Phoenix-Duff & Phelps Real Estate Securities Series may, however,
invest in mortgage-backed securities.
(2) Make loans other than loans of securities secured by cash or cash
equivalents for the full value of the securities; any interest earned
from securities lending will inure to the benefit of the Series which
holds such securities. However, the purchase of debt securities which
are ordinarily purchased by financial institutions are not considered
the loaning of money.
(3) Invest in commodities or in commodity contracts or in options provided,
however, that it may write covered call option contracts; and provided
further, that the Phoenix-Goodwin Strategic Allocation, Phoenix-Goodwin
Balanced, Phoenix-Hollister Value Equity, Phoenix-Oakhurst Growth and
Income and Phoenix-Seneca Mid-Cap Growth Series may enter into
financial futures contracts to purchase and sell debt obligations and
may buy call and put options on securities and stock market indexes;
and provided further, that the Phoenix-Aberdeen International and
Phoenix-Aberdeen New Asia Series may purchase call and put options on
securities, engage in financial futures contracts and related options
transactions, write secured put options, and enter into foreign
currency and foreign currency options transactions.
(4) Engage in the underwriting of securities of other issuers, except to
the extent any Series may be deemed an underwriter in selling as part
of an offering registered under the Securities Act of 1933 securities
which it has acquired. The Phoenix-Aberdeen International and
Phoenix-Aberdeen New Asia Series will buy and sell securities outside
the United States that are not registered with the SEC or marketable in
the United States.
(5) Borrow money, except as a temporary measure where such borrowing would
not exceed 25% of the market value of total assets at the time each
such borrowing is made. However, the Fund may borrow money for any
general purpose from a bank provided such borrowing does not exceed 10%
of the net asset value of the Fund, not considering any such borrowings
as liabilities. The Phoenix-Goodwin Strategic Allocation,
Phoenix-Aberdeen International and Phoenix-Aberdeen New Asia Series may
borrow money to the extent of financial futures transactions and
reverse repurchase agreements, provided that such borrowings are
limited to 331/ 3 % of the value of the total assets of the Series.
(6) Invest in illiquid securities in an amount greater than 15% of the net
asset value of any Series' portfolio at the time any such investment is
made.
(7) Purchase securities on margin, except for short-term credits as may be
necessary for the clearance of purchases or sales of securities, or to
effect a short sale of any security. (The deposit of "maintenance
margin" in connection with financial futures contracts is not
considered the purchase of a security on margin.)
(8) Invest for the purpose of exercising control over or management of any
company.
(9) Unless received as a dividend or as a result of an offer of exchange
approved by the SEC or of a plan of reorganization, purchase or
otherwise acquire
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<PAGE>
any security issued by an investment company if the Series would
immediately thereafter own (a) more than 3% of the outstanding voting
stock of the investment company, (b) securities of the investment
company having an aggregate value in excess of 5% of the Series' total
assets, (c) securities of investment companies having an aggregate
value in excess of 10% of the Series' total assets or (d) together with
investment companies having the same investment adviser as the Fund
(and companies controlled by such investment companies), more than 10%
of the outstanding voting stock of any registered closed-end investment
company.
(10) (a) Invest more than 5% of its total assets (taken at market value at
the time of each investment) in the securities (other than United
States government or government agency securities or in the case of the
Phoenix-Aberdeen International and Phoenix-Aberdeen New Asia Series,
other than foreign government securities) or, with respect to the
Phoenix-Goodwin Strategic Allocation and Phoenix-Goodwin Balanced
Series, call or put options contracts and financial futures contracts
of any one issuer (including repurchase agreements with any one bank);
and (b) purchase more than either (i) 10% in principal amount of the
outstanding debt securities of an issuer (the foregoing restriction
being inapplicable to the Phoenix-Duff & Phelps Real Estate Securities
Series) or (ii) 10% of the outstanding voting securities of an issuer,
except that such restrictions shall not apply to securities issued or
guaranteed by the United States government or its agencies, bank money
instruments or bank repurchase agreements. The Phoenix-Aberdeen
International Series will, with respect to 75% of its assets, limit its
investment in the securities of any one foreign government, its
agencies or instrumentalities to 5% of the Series' total assets.
(11) Concentrate the portfolio investments in any one industry (the
foregoing restriction being inapplicable to the Phoenix-Duff & Phelps
Real Estate Securities Series). No security may be purchased for a
Series if such purchase would cause the value of the aggregate
investment in any one industry to exceed 25% of the Fund's total
assets. However, the Phoenix-Goodwin Money Market Series and
Phoenix-Goodwin Strategic Allocation Series may invest more than 25% of
their assets in the banking industry. The Phoenix-Duff & Phelps Real
Estate Securities Series may invest not less than 75% of its assets in
the real estate industry.
(12) Issue senior securities.
(13) Enter into repurchase agreements which would cause more than 10% of any
Series' net assets (taken at market value) to be subject to repurchase
agreements maturing in more than seven days.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
The portfolio turnover rate of each Series is calculated by dividing the
lesser of purchases or sales of portfolio securities during the fiscal year by
the monthly average of the value of the Series' securities (excluding all
securities, including options, with maturities at the time of acquisition of one
year or less). All long-term securities, including long-term U.S. Government
securities, are included. A high rate of portfolio turnover generally involves
correspondingly greater brokerage commission expenses, which must be borne
directly by the Series. Turnover rates may vary greatly from year to year as
well as within a particular year and also may be affected by cash requirements
for redemptions of each Series' shares by requirements which enable the Fund to
receive certain favorable tax treatments. The portfolio turnover rates for each
Series (other than the Phoenix-Goodwin Money Market) are set forth under
"Financial Highlights" in the Prospectus.
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<PAGE>
MANAGEMENT OF THE FUND
The Trustees and executive officers of the Fund and their principal
occupations for the last five years are set forth below. Unless otherwise noted,
the address of each executive officer and Trustee is 56 Prospect Street,
Hartford, Connecticut 06115. The Trustees and executive officers are listed
below.
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Robert Chesek (64) Trustee Trustee/Director (1981-present) and Chairman (1989-1994), Phoenix Funds.
49 Old Post Road Trustee, Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps
Wethersfield, CT 06109 Institutional Mutual Funds (1996-present). Vice President, Common Stock,
Phoenix Home Life Mutual Insurance Company (1980-1994).
Director/Trustee, the National Affiliated Investment Companies (until
1993).
E. Virgil Conway (69) Trustee Chairman, Metropolitan Transportation Authority (1992-present).
9 Rittenhouse Road Trustee/Director, Consolidated Edison Company of New York, Inc.
Bronxville, NY 10708 (1970-present), Pace University (1978-present), Atlantic Mutual
Insurance Company (1974-present), HRE Properties (1989-present), Greater
New York Councils, Boy Scouts of America (1985-present), Union Pacific
Corp. (1978-present), Blackrock Freddie Mac Mortgage Securities Fund
(Advisory Director) (1990-present), Centennial Insurance Company
(1974-present), Josiah Macy, Jr., Foundation (1975-present), The Harlem
Youth Development Foundation (1987-present), Accuhealth (1994-present),
Trism, Inc. (1994-present), Realty Foundation of New York
(1972-present), New York Housing Partnership Development Corp.
(Chairman) (1981-present) and Fund Directions (Advisory Director)
(1993-present). Director/Trustee, Phoenix Funds (1993-present). Trustee,
Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Mutual Funds (1996-present). Director, Duff & Phelps Utilities Tax-Free
Income Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1995-present). Member, Audit Committee of the City of New York
(1981-1996). Advisory Director, Blackrock Fannie Mae Mortgage Securities
Fund (1989-1996). Member (1990-1995), Chairman (1992-1995), Financial
Accounting Standards Advisory Council.
Harry Dalzell-Payne (69) Trustee Director/Trustee, Phoenix Funds (1983-present). Trustee,
330 East 39th Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Apartment 29G Mutual Funds (1996-present). Director, Duff & Phelps Utilities Tax-Free
New York, NY 10016 Income Inc. and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1995-present). Director, Farragut Mortgage Co., Inc. (1991-1994).
*Francis E. Jeffries (68) Trustee Director/Trustee, Phoenix Funds (1995-present). Trustee,
6585 Nicholas Blvd. Phoenix-Aberdeen Series Inc. and Phoenix Duff & Phelps Institutional
Apt. 1601 Mutual Funds (1996-present). Director, Duff & Phelps Utilities Income
Naples, FL 33963 Inc. (1987-present), Duff & Phelps Utilities Tax-Free Income Inc.
(1991-present) and Duff & Phelps Utility and Corporate Bond Trust Inc.
(1993-present). Director, The Empire District Electric Company
(1984-present). Director (1989-1997), Chairman of the Board (1993-1997),
President (1989-1993) and Chief Executive Officer (1989-1995), Phoenix
Duff & Phelps Corporation.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Leroy Keith, Jr. (60) Trustee Chairman and Chief Executive Officer, Carson Products Company
Chairman and Chief (1995-present). Director/Trustee, Phoenix Funds (1980-present). Trustee,
Executive Officer Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Carson Product Company Mutual Funds (1996-present). Director, Equifax Corp. (1991-present) and
64 Ross Road Keystone International Fund, Inc. (1989-present). Trustee, Keystone
Savannah, GA 30750 Liquid Trust, Keystone Tax Exempt Trust, Keystone Tax Free Fund, Master
Reserves Tax Free Trust, and Master Reserves Trust. President, Morehouse
College (1987-1994). Chairman and Chief Executive Officer, Keith
Ventures (1992-1994).
*Philip R. McLoughlin (52) Trustee and President Chairman (1997-present), Director (1995-present), Vice Chairman
(1995-1997) and Chief Executive Officer (1995-present), Phoenix Duff &
Phelps Corporation. Director (1994-present) and Executive Vice
President, Investments (1988-present), Phoenix Home Life Mutual
Insurance Company. Director/Trustee and President, Phoenix Funds
(1989-present). Trustee and President, Phoenix-Aberdeen Series Fund and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present).
Director, Duff & Phelps Utilities Tax-Free Income Inc. (1995-present)
and Duff & Phelps Utility and Corporate Bond Trust Inc. (1995-present).
Director (1983-present) and Chairman (1995-present), Phoenix Investment
Counsel, Inc. Director (1984-present) and President (1990-present),
Phoenix Equity Planning Corporation. Director (1993-present), Chairman
(1993-present) and Chief Executive Officer (1993-1995), National
Securities & Research Corporation. Director, Phoenix Realty Group, Inc.
(1994-present), Phoenix Realty Advisors, Inc. (1987-present), Phoenix
Realty Investors, Inc. (1994-present), Phoenix Realty Securities, Inc.
(1994-present), PXRE Corporation (Delaware) (1985-present), and World
Trust Fund (1991-present). Director and Executive Vice President,
Phoenix Life and Annuity Company (1996-present). Director and Executive
Vice President, PHL Variable Insurance Company (1995-present). Director,
Phoenix Charter Oak Trust Company (1996-present). Director and Vice
President, PM Holdings, Inc. (1985-present). Director and President,
Phoenix Securities Group, Inc. (1993-1995). Director (1992-present) and
President (1992-1994), W.S. Griffith & Co., Inc. Director (1992-present)
and President (1992-1994), Townsend Financial Advisers, Inc.
**Everett L. Morris (70) Trustee Vice President, W.H. Reaves and Company (1993-present).
164 Laird Road Director/Trustee, Phoenix Funds (1995-present). Trustee, Duff & Phelps
Colts Neck, NJ 07722 Mutual Funds (1994-present). Trustee, Phoenix-Aberdeen Series Fund and
Phoenix Duff & Phelps Institutional Mutual Funds (1996-present).
Director, Duff & Phelps Utilities Tax-Free Income Inc. (1991-present)
and Duff & Phelps Utility and Corporate Bond Trust Inc. (1993-present).
Director, Public Service Enterprise Group, Incorporated (1986-1993).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
*James M. Oates (51) Trustee Chairman, IBEX Capital Markets LLC (1997-present). Managing Director,
Managing Director Wydown Group (1994-present). Director, Phoenix Duff & Phelps Corporation
The Wydown Group (1995-present). Director/Trustee, Phoenix Funds (1987-present). Trustee,
IBEX Capital Markets LLC Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
60 State Street Mutual Funds (1996-present). Director, AIB Govett Funds (1991-present),
Suite 950 Blue Cross and Blue Shield of New Hampshire (1994-present), Investors
Boston, MA 02109 Financial Service Corporation (1995-present), Investors Bank & Trust
Corporation (1995-present), Plymouth Rubber Co. (1995-present), Stifel
Financial (1996-present) and Command Systems, Inc. (1998-present). Vice
Chairman, Massachusetts Housing Partnership (1992-present). Member,
Chief Executives Organization (1996-present). Director (1984-1994),
President (1984-1994) and Chief Executive Officer (1986-1994), Neworld
Bank. Director/Trustee, the National Affiliated Investment Companies
(until 1993).
*Calvin J. Pedersen (56) Trustee Director (1986-1995), President (1993-1995), Phoenix Duff & Phelps
Phoenix Duff & Phelps Corporation. Director/Trustee, Phoenix Funds (1995-present). Trustee,
Corporation Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
55 East Monroe Street Mutual Funds (1996-present). President and Chief Executive Officer, Duff
Suite 3600 & Phelps Utilities Tax-Free Income Inc. (1994-present), Duff & Phelps
Chicago, IL 60603 Utilities Income Inc. (1994-present) and Duff & Phelps Utility and
Corporate Bond Trust Inc. (1995-present).
**Herbert Roth, Jr. (70) Trustee Director/Trustee, Phoenix Funds (1980-present). Trustee,
134 Lake Street Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
P. O. Box 909 Mutual Funds (1996-present). Director, Boston Edison Company
Sherborn, MA 01770 (1978-present), Phoenix Home Life Mutual Insurance Company
(1972-present), Landauer, Inc. (medical services) (1970-present), Tech
Ops./Sevcon, Inc. (electronic controllers) (1987-present), and Mark IV
Industries (diversified manufacturer) (1985-present). Director, Key
Energy Group (oil rig service) (1988-1994). Director/Trustee, the
National Affiliated Investment Companies (until 1993).
Richard E. Segerson (53) Trustee Managing Director, Mullin Associates (1993-present). Director/Trustee,
102 Valley Road Phoenix Funds, (1993-present). Trustee, Phoenix-Aberdeen Series Fund and
New Canaan, CT 06840 Phoenix Duff & Phelps Institutional Mutual Funds (1996-present). Vice
President and General Manager, Coats & Clark, Inc. (previously Tootal
American, Inc.) (1991-1993). Director/Trustee, the National Affiliated
Investment Companies (1984-1993).
Lowell P. Weicker, Jr. (67) Trustee Trustee/Director, Phoenix Funds (1995-present). Trustee,
731 Lake Avenue Phoenix-Aberdeen Series Fund and Phoenix Duff & Phelps Institutional
Greenwich, CT 06830 Mutual Funds (1996-present). Director, UST Inc. (1995-present), HPSC
Inc. (1995-present), Compuware (1996-present) and Burroughs Wellcome
Fund (1996-present). Visiting Professor, University of Virginia
(1997-present). Director, Duty Free International (1997). Chairman,
Dresing, Lierman, Weicker (1995-1996). Governor of the State of
Connecticut (1991-1995).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Michael E. Haylon (41) Executive Director and Executive Vice President--Investments, Phoenix Duff & Phelps
Vice President Corporation (1995-present). Executive Vice President, Phoenix Funds
(1993-present) and Phoenix-Aberdeen Series Fund (1996-present).
Executive Vice President (1997-present), Vice President (1996-1997),
Phoenix Duff & Phelps Institutional Mutual Funds. Director
(1994-present), President (1995-present, Executive Vice President
(1994-1995), Vice President (1991-1994), Phoenix Investment Counsel,
Inc. Director (1994-present), President (1996-present), Executive Vice
President (1994-1996), Vice President (1993-1994), National Securities &
Research Corporation. Director, Phoenix Equity Planning Corporation
(1995-present). Senior Vice President, Securities Investment, Phoenix
Home Life Mutual Insurance Company (1993-1995).
John F. Sharry (47) Executive Managing Director, Retail Distribution, Phoenix Equity Planning
Vice President Corporation (1995-present). Executive Vice Presidet, Phoenix Funds
(1998-present) and Phoenix-Aberdeen Series Fund (1998-present). Managing
Director, director and national Sales Manager, Putnam Mutual Funds
(until 1995).
</TABLE>
- ---------------
* Trustees identified with an asterisk are considered to be "interested
persons" of the Fund within the meaning of the definition set forth in
Section 2(a)(19) of the Investment Company Act of 1940.
** Pursuant to the retirement Policy of the Phoenix Funds, Messrs. Morris and
Roth will retire from the Board of Trustees effective January 1, 1999.
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Roger Engemann (57) Senior Vice President President, Roger Engemann & Associates (1992-present). President and
600 North Rosemead Boulevard a Director, Pasadena Capital Corporation. Senior Vice President, The
Pasadena, CA 91107 Phoenix Edge Series Fund and Phoenix Series Fund (1998-present).
Managing Director, Equities, Phoenix Investment Counsel, Inc.
(1998-present).
David K. Schafer (60) Senior Vice President and Director, Schafer Capital Management, Inc.
101 Carnegie Center, Suite 107 President (1983-present). Senior Vice President and Portfolio Manager, The
Princeton, NJ 08540 Phoenix Edge Series Fund (1998-present). President and Chairman,
Strong Schafer Value Fund (1985-present). Chairman, Schafer Cullen
Capital Management, Inc. (1983-present). President, Chubb Equity
Managers, Inc. (1992-1996).
Gail P. Seneca (43) Senior Vice President President, Chief Executive and Chief Investment Officer, Seneca
909 Montgomery Street Capital Management, LLC (1996-present). Chief Executive and
San Francisco, CA 94133 Investment Officer, and a managing general partner, GMG/Seneca
Capital Management, LLC (1989-present). President and a Trustee,
Seneca Funds (1996-present). Senior Vice President, The Phoenix Edge
Series Fund (1998-present).
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
James D. Wehr (41) Senior Vice President Managing Director, Fixed Income (1996-present), Vice President
(1991-1996), Phoenix Investment Counsel, Inc. Managing Director,
Fixed Income (1996-present), Vice President (1993-1996), National
Securities & Research Corporation. Senior Vice President, Phoenix
Multi-Portfolio Fund, Phoenix Series Fund, The Phoenix Edge Series
Fund, Phoenix California Tax Exempt Bonds, Inc., Phoenix Duff &
Phelps Institutional Mutual Funds, Phoenix-Goodwin Multi-Sector
Fixed Income Fund, Inc., Phoenix Multi-Sector Short Term Bond Fund,
Phoenix Income and Growth Fund and Phoenix Strategic Allocation Fund
(1997-present). Senior Vice President and Chief Investment Officer,
Duff & Phelps Utilities Tax-Free Income Inc. (1997-present). Vice
President, Phoenix Multi-Portfolio Fund (1988-1997), Phoenix Series
Fund (1990-1997), The Phoenix Edge Series Fund (1991-1997), Phoenix
California Tax Exempt Bonds, Inc. (1993-1997) and Phoenix Duff &
Phelps Institutional Mutual Funds (1996-1997). Managing Director,
Public Fixed Income, Phoenix Home Life Insurance Company
(1991-1995).
Hugh Young (40) Senior Senior Vice President, Phoenix-Aberdeen Series Fund and The Phoenix
Aberdeen Asset Managers LTD Vice President Edge Series Fund (1996-present). Director, Phoenix-Aberdeen
88A Circular Road International Advisors, LLC. Far East Investment Director, Aberdeen
Singapore 049439 Asset Management Asia Limited (1988-present). Managing Director,
Aberdeen Asset Management Asia Limited (1992-present). Director,
Abtrust Asian Smaller Companies Investment Trust plc (1995-present),
Abtrust New Dawn Investment Trust plc (1989-present), Abtrust
Emerging Asia Investment Trust Limited (1990-present), JF Philippine
Fund Inc. and Apollo Tiger.
David L. Albrycht (37) Vice President Managing Director, Fixed Income (1996-present) and Vice President
(1995-1996), Phoenix Investment Counsel, Inc. Managing Director,
Fixed Income (1996-present) and Investment Officer (1994-1996),
National Securities & Securities Research Corporation. Vice
President, Phoenix Multi-Portfolio Fund (1993-present), Phoenix
Multi-Sector Short Term Bond Fund (1993-present), Phoenix
Multi-Sector Fixed Income Fund, Inc. (1994-present). The Phoenix
Edge Series Fund (1997-present) and Phoenix Series Fund
(1997-present). Portfolio Manager, Phoenix Home Life Mutual
Insurance Company (1995-1996).
Christian C. Bertelsen (56) Vice President Managing Director, Value Equities, Phoenix Investment Counsel, Inc.
(1997-present). Vice President, The Phoenix Edge Series Fund
(1998-present), Phoenix Investment Trust 97 (1997-present). Senior
Vice President and Chief Investment Officer, Zurich Kemper
(1996-1997). Vice President and Portfolio Manager, Zurich Kemper
Small Cap Fund and Zurich Kemper Contrarian Fund (1996-1997). Senior
Vice President, Eagle Asset Management (1993-1996). Vice President
and Portfolio Manager, Heritage Value Fund and Golden Select
Variable Annuity Value Trust (1995-1996).
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Steven L. Colton (40) Vice President Managing Director, Value Equities, Phoenix Investment Counsel, Inc.
(1997-present). Managing Director, Value Equities, National
Securities & Research Corporation (1998-present). Vice President,
The Phoenix Edge Series Fund (1997-present), Phoenix Series Fund
(1997-present), Phoenix Equity Series Fund (1997-present), and
Phoenix Income and Growth Fund (1998-present). Vice President/Senior
Portfolio Manager, American Century Investment Management
(1987-1997). Portfolio Manager, American Century/Benham Income and
Growth Fund (1990-1997), American Century/Benham Equity Growth Fund
(1991-1996) and American Century/Benham Utilities Income Fund
(1993-1997).
Timothy Devlin (35) Vice President Vice President and Portfolio Manager, J.P. Morgan Investment Company
J.P. Morgan Investment and Morgan Guaranty Trust Company of NY (1996-present). Vice
Management Inc. President, The Phoenix Edge Series Fund (1997-present). First Vice
522 Fifth Avenue President and Portfolio Manager, Mitchell Hutchins Asset Management,
New York, NY 10036 Inc. (1987-1996).
Ronald K. Jacks (31) Vice President Portfolio Manager, Seneca Capital Management, LLC (1996-present).
909 Montgomery Street Portfolio Manager, GMG/Seneca Capital Management, LLC
San Francisco, CA 94133 (1990-present). Senior Vice President, The Phoenix Edge Series Fund
and Phoenix Strategic Equity Series Fund (1998-present). Managing
Director, Equities, National Securities & Research Corporation
(1998-present). Trustee, Seneca Funds (1996-1997).
Christopher J. Kelleher (46) Vice President Managing Director, Fixed Income (1996-present), Vice President
(1991-1996), Phoenix Investment Counsel, Inc. Managing Director,
Fixed Income (1996-present), Vice President, (1993-1996) National
Securities & Research Corporation. Portfolio Manager, Public Bonds,
Phoenix Home Life Mutual Insurance Company (1991-1995). Portfolio
Manager, U.S. Government Securities (1989-1997), Vice President
(1989-present), Phoenix Series Fund. Vice President, The Phoenix
Edge Series Fund (1998-present), Phoenix Income and Growth Fund
(1998-present). Portfolio manager, U.S. Government Securities
Portfolio (1996-present). Vice President, Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present).
Richard D. Little (50) Vice President Managing Director, Equities, Phoenix Investment Counsel, Inc.
(1998-present). Vice President, The Phoenix Edge Series Fund
(1998-present), Phoenix Strategic Equity Series Fund (1998-present).
and Phoenix Multi-Portfolio Fund (1998-present). Director of
Equities, Seneca Capital management LLC (1996-present). General
Partner and Director of Equities, Seneca Capital Management LP
(1989-present).
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
James E. Mair (57) Vice President Managing Director, Phoenix Investment Counsel, Inc. (1998-present).
Roger Engemann & Associates, Inc. Vice President, Co-Portfolio Manager, Nifty Fifty, The Phoenix Edge
600 Rosemead Boulevard Series Fund (1998-present). Vice President, Co-Portfolio Manager,
Pasadena, CA 91107-2138 Aggressive Growth, Phoenix Series Fund (1998-present). Vice
President, Co-Portfolio Manager, Small Cap Phoenix Strategic Equity
Series Fund (1998-present). Executive Vice President (1994-present)
Senior Vice President (1983-1994), Roger Engemann & Associates, Inc.
Executive Vice President (1994-present), Security Analyst
(1983-1994), Roger Engemann Management Co., Inc. Executive Vice
President (1994-present), Senior Vice President (1990-1994),
Director (1990-present), Pasadena Capital Corporation. Director,
Pasadena National Trust company (1989-present).
William R. Moyer (54) Vice President Senior Vice President and Chief Financial Officer, Phoenix Duff &
100 Bright Meadow Blvd. Phelps Corporation (1995-present). Director (1998-present), Senior
P.O. Box 2200 Vice President, Finance (1990-present), Chief Financial Officer
Enfield, CT 06083-2200 (1996-present), and Treasurer (1994-1996 and 1998-present), Phoenix
Equity Planning Corporation. Director (1998-present), Senior Vice
President (1990-present), Chief Financial Officer (1996-present) and
Treasurer (1994-present), Phoenix Investment Counsel, Inc. Director
(1998-present), Senior Vice President, Finance (1993-present), Chief
Financial Officer (1996-present), and Treasurer (1994-present),
National Securities & Research Corporation. Senior Vice President
and Chief Financial Officer, Duff & Phelps Investment Management Co.
(1996-present). Vice President, Phoenix Funds (1990-present),
Phoenix-Duff & Phelps Institutional Mutual Funds (1996-present),
Phoenix-Aberdeen Series Fund (1996-present). Senior Vice President
and Chief Financial Officer, W. S. Griffith & Co., Inc. (1992-1995)
and Townsend Financial Advisers, Inc. (1993-1995). Vice President,
Investment Products Finance, Phoenix Home Life Mutual Insurance
Company (1990-1995)..
Leonard J. Saltiel (45) Vice President Managing Director, Operations and Service (1996-present), Senior
Vice President (1994-1996), Phoenix Equity Planning Corporation.
Vice President, Phoenix Funds (1994-present), Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present) and Phoenix-Aberdeen
Series Fund (1996-present). Vice President, National Securities &
Research Corporation (1994-1998). Vice President, Investment
Operations, Phoenix Home Life Mutual Insurance Company (1994-1995).
Various positions with Home Life Insurance Company and Phoenix Home
Life Mutual Insurance Company (1987-1994).
Julie L. Sapia (42) Vice President Director, Money Market Trading (1998-present), Head Money Market
Trader (1997-1998), Money Market Trader (1995-1997), Phoenix
Investment Counsel, Inc. Vice President, The Phoenix Edge Series
Fund, Phoenix Series Fund, Phoenix Duff & Phelps Institutional
Mutual Funds and Phoenix-Aberdeen Series Fund (1997-present). Money
Market Trader, Phoenix Home Life Mutual Insurance Company
(1991-1995).
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE FUND DURING PAST FIVE YEARS
- ---------------- ------------- ----------------------
<S> <C> <C>
Michael Schatt (52) Vice President Managing Director, Phoenix Duff & Phelps Corporation (1994-present).
55 East Monroe Street Senior Vice President, Duff & Phelps Investment Management Co.
Suite 3600 (1997-present). Vice President, Phoenix Realty Securities, Inc.
Chicago, IL 60603 (1997-present). Vice President, Phoenix Duff & Phelps Institutional
Mutual Funds, Phoenix Multi-Portfolio Fund and The Phoenix Edge
Series Fund (1997-present). Director, Real Estate Advisory Practice,
Coopers & Lybrand, LLC (1990-1994).
John S. Tilson (54) Vice President Executive Vice President, Portfolio Manager and Securities Analyst,
600 North Rosemead Boulevard Roger Engemann & Associates (1983-present). An officer and a
Pasadena, CA 91107 Director of Pasadena Capital Corporation. Senior Vice President, The
Phoenix Edge Series Fund (1998-present).
Pierre G. Trinque (43) Vice President Managing Director, Large Cap Growth Team (1997-present), Managing
Director, Director of Equity Research (1996-1997), Senior Research
Analyst, Equities (1996) and Associate Portfolio Manager,
Institutional Funds (1992-1995), Phoenix Investment Counsel, Inc.
Vice President, The Phoenix Edge Series Fund and Phoenix Series Fund
President (1997-present).
James C. Wiess (38) Vice President Vice President and Portfolio Manager, J.P. Morgan Investment
J.P. Morgan Investment Management Inc. and Morgan Guaranty Trust Company of New York
Management Inc. (1992-present). Vice President, The Phoenix Edge Series Fund
522 Fifth Avenue (8/97-present).
New York, NY 10036
Nancy G. Curtiss (46) Treasurer Treasurer (1996-present), Vice President, Fund Accounting
(1994-1996), Phoenix Equity Planning Corporation. Treasurer, Phoenix
Funds (1994-present), Phoenix-Aberdeen Series Fund (1996-present)
and Phoenix Duff & Phelps Institutional Mutual Funds (1996-present).
Second Vice President and Treasurer, Fund Accounting, Phoenix Home
Life Mutual Insurance Company (1994-1995). Various positions with
Phoenix Home Life Mutual Insurance Company (1987-1994).
G. Jeffrey Bohne (51) Secretary Vice President and General Manager, Phoenix Home Life Mutual
101 Munson Street Insurance Co. (1993-present). Vice President, Mutual Fund Customer
Greenfield, MA 01301 Service (1996-present), Vice President, Transfer Agency Operations
(1993-1996), Phoenix Equity Planning Corporation. Secretary and/or
Clerk, Phoenix Funds (1993-present), Phoenix Duff & Phelps
Institutional Mutual Funds (1996-present) and Phoenix-Aberdeen
Series Fund (1996-present).
</TABLE>
- ---------------
No person listed in the foregoing table has any immediate family relationship
with any other person listed in the table.
At December 31, 1998, the Trustees and officers as a group owned none of the
then outstanding shares of the Fund.
For services rendered to the Fund during the fiscal year ended December 31,
1998, the Trustees received an aggregate of $210,013 from the Fund as Trustees'
fees. For service on the Boards of the Phoenix Funds, each Trustee who is not a
full-time employee of the Advisers or any of their affiliates currently receives
a retainer at the annual rate of $40,000 and $2,500 per joint meeting of the
Boards. Each Trustee who serves on the Audit Committee receives a retainer at
the annual rate of $2,000 and $2,000 per joint Audit Committee meeting attended.
The current members of the Audit Committee are Messrs. Conway, Roth, Segerson
and Weicker. Each Trustee who serves on the Executive Committee and who is not
an interested person of the Fund receives a retainer at the annual rate of
$1,000 and $1,000 per joint Executive Committee meeting attended. The current
members of the Executive Committee are Messrs. Conway, Dalzell-Payne,
McLoughlin, Morris, Oates and Roth. The function of the Executive Committee is
to serve as a contract review, compliance review and performance review delegate
of
26
<PAGE>
the full Board of Trustees. The foregoing fees do not include the
reimbursement of expenses incurred in connection with meeting attendance.
Trustee costs are allocated equally to each of the Series of the Funds within
the Fund complex. Officers and employees of the Adviser who are "interested
persons" are compensated by the Adviser and receive no compensation from the
Fund.
For the Fund's fiscal year ended December 31, 1998, the Trustees received the
following compensation:
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
RETIREMENT FROM FUND AND
AGGREGATE BENEFITS ESTIMATED ANNUAL FUND COMPLEX
COMPENSATION ACCRUED AS PART OF BENEFITS UPON (13 FUNDS)
NAME FROM FUND FUND EXPENSES RETIREMENT PAID TO TRUSTEES
---- --------- ------------- ---------- ----------------
<S> <C> <C>
Robert Chesek $18,143 $60,000
E. Virgil Conway $24,122 $79,500
Harry Dalzell-Payne $21,652 $71,250
Francis E. Jeffries $18,192 None for None for $60,000
Leroy Keith, Jr. $19,015 any Trustee any Trustee $62,500
Philip R. McLoughlin $0 $0
Everett L. Morris $20,828 $69,500
James M. Oates $20,828 $68,750
Philip R. Reynolds $140 $500
Herbert Roth, Jr. $24,946 $81,250
Richard E. Segerson $21,486 $70,750
Lowell P. Weicker, Jr. $21,486 $70,000
</TABLE>
* This compensation (and the earnings thereon) is deferred pursuant to the
Directors' Deferred Compensation Plan. At December 31, 1998, the total amount
of deferred compensation (including interest and other accumulation earned on
the original amounts deferred) accrued for Messrs. Jeffries, Morris and Roth
was $60,161.00, $126,891.00 and $137,672.00, respectively. At present, by
agreement among the Fund, the Distributor and the electing director, director
fees that are deferred are paid by the Fund to the Distributor. The liability
for the deferred compensation obligation appears only as a liability of the
Distributor.
27
<PAGE>
CONTROL PERSONS
The shares of each of the Series are owned by one or more of the separate
accounts of the Phoenix family of insurance companies offering variable
insurance products or by the general account of Phoenix Home Life Mutual
Insurance Company ("Phoenix"). The table below shows the percentage ownership of
each Series held by each separate or general account.
<TABLE>
<CAPTION>
- -------------------------------- ------------- ---------------- --------------- --------------- ------------------------------------
PHOENIX HOME LIFE
PHOENIX PHOENIX HOME PHL VARIABLE PHOENIX HOME SEPARATE SEPARATE SEPARATE
HOME LIFE ACCUMULATION LIFE ACCOUNT B ACCOUNT C ACCOUNT D
LIFE VARIABLE ACCOUNT VARIABLE
GENERAL UNIVERSAL ACCUMULATION
ACCOUNT LIFE ACCOUNT ACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Goodwin Money Market 18.5 30.2 51.3
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Goodwin Growth 20.7 14.3 64.5 0.2 0.2 0.1
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Goodwin Multi-Sector
Fixed Income 11.1 32.7 56.2
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Goodwin Strategic
Allocation 13.4 13.6 73.0
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Aberdeen International 26.0 11.8 62.2
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Goodwin Balanced 10.6 16.8 72.6
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Duff & Phelps Real
Estate Securities 8.7 12.6 33.1 45.6
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Goodwin Strategic Theme 12.3 36.8 50.9
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Aberdeen New Asia 20.1 16.8 26.8 36.3
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix Research Enhanced Index 24.6 32.0 43.4
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Schaefer Mid-Cap Value 19.6 17.0 32.0 31.4
- ------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Seneca Mid-Cap Growth 25.9 16.1 30.0 28.0
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Oakhurst Growth & Income 4.2 10.8 41.7 43.3
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Hollister Value Equity 20.1 43.5 36.4
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
Phoenix-Engemann Nifty Fifty 11.2 16.7 40.4 31.7
- -------------------------------- ------------- ---------------- --------------- --------------- ------------ ----------- -----------
</TABLE>
PHL Variable Insurance Company is an indirect, wholly-owned subsidiary of
Phoenix which is, in turn, the controlling person of each Series.
No shares of any Series is held by any officer or director of the Fund or
any Advisor or Sub-Advisor.
THE INVESTMENT ADVISERS
- --------------------------------------------------------------------------------
The Fund has entered into Investment Advisory Agreements ("Agreements") with
Phoenix Investment Counsel, Inc. ("PIC"), DPIM and Phoenix-Aberdeen
International Advisors, LLC ("PAIA") whose offices are located in Hartford,
Connecticut.
Phoenix is in the business of writing ordinary and group life and health
insurance and annuities. PEPCO performs bookkeeping and pricing and
administrative services for the Fund. It also provides bookkeeping and pricing
services to other investment companies advised by PIC and its affiliates. PEPCO
is registered as a broker-dealer in 50 states. The executive offices of Phoenix
and PAIA are located at One American Row, Hartford, Connecticut 06102 and the
principal offices of Equity Planning are located at 100 Bright Meadow Boulevard,
P.O. Box 2200, Enfield, Connecticut 06083-2200.
INVESTMENT ADVISERS
The Fund's investment adviser to all Series except the Phoenix-Duff & Phelps
Real Estate Securities and Phoenix-Aberdeen New Asia Series is Phoenix
Investment Counsel, Inc. ("PIC"), which is located at 56 Prospect Street,
Hartford, Connecticut 06115. All of the outstanding stock of PIC is owned by
Phoenix Equity Planning Corporation ("PEPCO"), a subsidiary of Phoenix Duff &
Phelps Corporation ("PD&P"). Phoenix owns a controlling interest in PD&P. PEPCO
also performs bookkeeping, pricing and administrative services for the Fund.
PEPCO is registered as a broker-dealer in 50 states. The executive offices of
Phoenix are located at One American Row, Hartford, Connecticut 06102; the
executive offices of PD&P are located at 56 Prospect Street, Hartford,
Connecticut 06115, and the principal offices of PEPCO are located at 100 Bright
Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200. In addition to
the Fund, PIC serves as investment adviser to the Phoenix Series Fund,
Phoenix-Goodwin Strategic Allocation Fund, Inc. Phoenix Strategic Equity Series
Fund (all series other than Equity Opportunities Series), Phoenix Duff & Phelps
Institutional Mutual Funds (all portfolios other than the Phoenix-Duff & Phelps
Real Estate Securities Equity Securities Portfolio, Core Equity Portfolio and
the
28
<PAGE>
Enhanced Reserves Portfolio), Phoenix Growth and Income Fund of Phoenix Equity
Series Fund, Phoenix Investment Trust 97 and Phoenix Multi-Portfolio Fund (all
portfolios other than the Real Estate Securities Portfolio) and as subadviser to
Sun America Series Trust. PIC also serves as subadviser to the Phoenix-Aberdeen
New Asia Series. PIC was originally organized in 1932 as John P. Chase, Inc. As
of December 31, 1998, PIC has approximately $20.5 billion in assets under
management.
All of the outstanding stock of PIC is owned by PEPCO, a subsidiary of
Phoenix Duff & Phelps Corporation ("PD&P") of Chicago, Illinois. Phoenix owns a
majority interest in PD&P. PIC also serves as subadviser to the Phoenix-Aberdeen
New Asia Series.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated ("JPM & Co."), serves as subadviser
to the Phoenix Research Enhanced Index Series. J.P. Morgan's principal place of
business is located at 522 Fifth Avenue, New York, New York 10036. J.P. Morgan
presently serves as an investment manager for corporate, public and union
employee benefit funds, foundations, endowments, insurance companies, government
agencies and the accounts of other institutional investors. J.P. Morgan was
founded in 1984. JPM & Co., through J.P. Morgan and its other investment
management subsidiaries, had approximately $316 billion in assets under
management as of December 31, 1998.
Roger Engemann & Associates ("Engemann") serves as subadviser to the
Phoenix-Engemann Nifty Fifty Series. Engemann is a wholly owned subsidiary of
Pasadena Capital Corporation, which in turn is a wholly owned subsidiary of
PD&P. Engemann has been engaged in the investment management business since
1969, and provides investment counseling services to retirement plans, colleges,
corporations, trusts and individuals. Engemann also serves as investment adviser
to the Phoenix-Engemann Funds. As of December 31, 1998, Engemann had
approximately $7.8 billion in assets under management.
Seneca Capital Management, LLC serves as subadviser to the Phoenix-Seneca
Mid-Cap Growth Series. PD&P owns a majority interest in Seneca; the balance is
owned by certain of its employees, including Gail Seneca, one of the portfolio
management team leaders, and the former limited partners of GMG/Seneca Capital
Management, LLC. Seneca (including its predecessor, GMG/Seneca Capital
Management LP) has been an investment adviser since 1989, managing equity and
fixed-income securities portfolios primarily for institutions and individuals.
As of December 31, 1998, Seneca had approximately $5.9 billion in assets under
management.
Schafer Capital Management, Inc. ("Schafer"), serves as subadviser to the
Phoenix-Schafer Mid-Cap Value Series. Schafer's principal place of business is
located at 101 Carnegie Center, Suite 107, Princeton, New Jersey. Schafer has
been engaged in the investment management business since 1981, specializing in
long-term investing in the equity markets. As of December 31, 1998, Schafer had
approximately $1.7 billion in assets under management.
The offices of Duff & Phelps Investment Management Co. ("DPIM") are located
at 55 East Monroe Street, Suite 3600, Chicago, Illinois 60603. DPIM also serves
as investment adviser to the Core Equity Fund of Phoenix Equity Series Fund, the
Enhanced Reserves, Core Equity and Real Estate Equity Securities Portfolio of
Phoenix Duff & Phelps Institutional Mutual Funds, the Real Estate Securities
Portfolio of Phoenix Multi-Portfolio Fund and three closed-end funds: Duff &
Phelps Utilities Income Inc., Duff & Phelps Utilities Tax-Free Income Inc. and
Duff & Phelps Utility and Corporate Bond Trust Inc. The investment adviser at
inception of the Phoenix-Duff & Phelps Real Estate Securities Series was Phoenix
Realty Securities, Inc. ("PRS" or "Adviser") PRS is a wholly-owned indirect
subsidiary of Phoenix Home Life. On March 2, 1998, DPIM purchased the management
rights for the Series from PRS and PRS's contract was assigned to DPIM. As of
December 31, 1998, DPIM had approximately $15.2 billion in assets under
management.
PAIA, a Delaware limited liability company formed in 1996 and jointly owned
and managed by PM Holdings, Inc., a subsidiary of Phoenix, and Aberdeen Fund
Managers, Inc., a wholly-owned subsidiary of Aberdeen Asset Management plc.
Aberdeen Fund Managers, Inc. has its principal offices located at One Financial
Plaza, Suite 2210, NationsBank Tower, Fort Lauderdale, Florida 33394. PAIA also
serves as investment adviser to Phoenix-Aberdeen Series Fund. While many of the
officers and directors of the PAIA have extensive experience as investment
professionals, due to its recent formation, PAIA has no prior operating history.
Aberdeen Fund Managers, Inc. also serves as subadviser for the Phoenix-Aberdeen
New Asia Series and Phoenix-Aberdeen Series Fund.
Aberdeen Asset Management was founded in 1983 and through subsidiaries
operating from offices in Aberdeen, Scotland; London, England; Singapore and
Fort Lauderdale, Florida, provides investment management services to unit and
investment trusts, segregated pension funds and other institutional and private
portfolios. As of December 31, 1998, Aberdeen Asset Management, and its advisory
subsidiaries, had approximately $23.9 billion in assets under management.
Philip R. McLoughlin, President and Trustee of the Trust, is a director and
officer of PIC. Michael E. Haylon, an officer of the Trust, is a director and
officer of PIC and also an officer of DPIM. William R. Moyer, an officer of the
Trust, is a director and officer of PIC and also an officer of DPIM. David L.
Albrycht, Curtiss O. Barrows, Christian C. Bertelson, Mary E. Canning, Steven L.
Colton, J. Roger Engemann, John D. Kattar, William E. Keen, III, David Lui,
James E. Mair, William J. Newman,
29
<PAGE>
Julie L. Sapia, Thomas N. Steenburg, John S. Tilson, Pierre G. Trinque and James
D. Wehr, officers of the Trust, are officers of PIC. Michael Schatt and Thomas
N. Steenburg, officers of the Trust, are also officers of DPIM. Hugh Young, an
officer of the Trust, is a director and officer of PAIA.
The Agreements provide that each Adviser shall furnish continuously, at its
own expense, an investment program for each of the Series, subject at all times
to the supervision of the Trustees. They also provide that all costs and
expenses not specifically enumerated as payable by the Advisers shall be paid by
the Fund or by Phoenix, PHL Variable and PLAC. The Advisers or Phoenix, PHL
Variable and PLAC have agreed to reimburse the Fund for certain operating
expenses for all Series. Each Series (except the Phoenix-Aberdeen International,
Phoenix-Duff & Phelps Real Estate Securities, Phoenix-Goodwin Strategic Theme,
Phoenix-Aberdeen New Asia, Phoenix Research Enhanced Index and Phoenix-Seneca
Mid-Cap Growth Series) pays a portion or all of its total operating expenses
other than the management fee, up to .15% of its total average net assets. The
Phoenix-Aberdeen International, Phoenix-Duff & Phelps Real Estate Securities,
Phoenix-Goodwin Strategic Theme, Phoenix-Aberdeen New Asia, Phoenix Research
Enhanced Index and Phoenix-Seneca Mid-Cap Growth Series pay total operating
expenses other than the management fee up to .40%, .25%, .25%, .25%, .10%, and
.25%, respectively, of its total average net assets. Expenses above these limits
are paid by the Advisers, Phoenix, PHL Variable or PLAC.
The Agreements also provide that the Advisers will reimburse the Fund for
the amount, if any, by which the total operating expenses (including the
Adviser's compensation, but excluding interest, taxes, brokerage fees and
commissions and extraordinary expenses) for any fiscal year exceed the level of
expenses which the Fund is permitted to bear under the most restrictive expense
limitation.
To the extent that any expenses are paid by the Fund, they will be paid by
the Series incurring them or, in the case of general expenses, may be charged
among the Series in relation to the benefits received by the shareholders, as
determined by the financial agent under the supervision of the Board of
Trustees. Such expenses shall include, but shall not be limited to, all expenses
(other than those specifically referred to as being borne by the Advisers,
Phoenix, PHL Variable or PLAC) incurred in the operation of the Fund and any
offering of its shares, including, among others, interest, taxes, brokerage fees
and commissions, fees of Trustees, expenses of Trustees' and shareholders'
meetings including the cost of printing and mailing proxies, expenses of
insurance premiums for fidelity and other coverage, expenses of repurchase and
redemption of shares, certain expenses of issue and sale of shares, association
membership dues, charges of custodians, transfer agents, dividend disbursing
agents and financial agents, bookkeeping, auditing and legal expenses. The Fund,
Phoenix, PHL Variable or PLAC also will pay the fees and bear the expense of
registering and maintaining the registration of the Fund and its shares with the
SEC and the expense of preparing and mailing prospectuses and reports to
shareholders.
The Investment Advisory Agreements provide that the Advisers shall not be
liable to the Fund or to any shareholder of the Fund for any error of judgment
or mistake of law or for any loss suffered by the Fund or by any shareholder of
the Fund in connection with the matters to which the Investment Advisory
Agreements relate, except a loss resulting from willful misfeasance, bad faith,
gross negligence or reckless disregard on the part of the Advisers in the
performance of its duties thereunder.
The Investment Advisory Agreements also provide that, as full compensation
for the services and facilities furnished to the Fund, the Advisers shall be
compensated as follows:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR RATE FOR RATE FOR
FIRST NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Phoenix-Goodwin
Money Market......... .40% .35% .30%
Phoenix-Goodwin
Multi-Sector Fixed
Income............... .50% .45% .40%
Phoenix-Goodwin Balanced .55% .50% .45%
Phoenix-Goodwin
Strategic Allocation. .60% .55% .50%
Phoenix-Goodwin Growth .70% .65% .60%
Phoenix-Aberdeen
International........ .75% .70% .65%
Phoenix-Goodwin
Strategic Theme ..... .75% .70% .65%
Phoenix-Engemann
Nifty Fifty.......... .90% .85% .80%
Phoenix-Oakhurst
Growth and Income ... .70% .65% .60%
Phoenix-Hollister
Value Equity......... .70% .65% .60%
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
SERIES
- ------
Phoenix Research
Enhanced Index...... .45%
Phoenix-Seneca Mid-Cap
Growth.............. .80%
Phoenix-Schafer
Mid-Cap Value ...... 1.05%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Phoenix-Aberdeen
New Asia............. 1.00%
30
<PAGE>
DUFF & PHELPS INVESTMENT MANAGEMENT CO.
---------------------------------------
RATE FOR RATE FOR
FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Phoenix-Duff & Phelps
Real Estate Securities .75% .70% .65%
The amounts payable to the Advisers shall be based upon the average of the
values of the net assets of the Fund as of the close of business each day. There
can be no assurance that the Fund will reach a net asset level high enough to
realize a reduction in the rate of the advisory fee.
The Investment Advisory Agreements continue in force from year to year for
all Series, provided that, with respect to each Series, the applicable agreement
must be approved at least annually by the Trustees or by vote of a majority of
the outstanding voting securities of that Series. In addition, and in either
event, the terms of the agreements and any renewal thereof must be approved by
the vote of a majority of Trustees who are not parties to the agreement or
interested persons (as that term is defined in the Investment Company Act of
1940) of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The agreements will terminate automatically if assigned
and may be terminated at any time, without payment of any penalty, either by the
Fund or by the Advisers, on sixty (60) days written notice.
Pursuant to a subadvisory agreement with the Fund, PIC delegates certain
investment decisions and research functions with respect to the Phoenix Research
Enhanced Index Series to J.P. Morgan, with respect to the Phoenix-Engemann Nifty
Fifty Series to Engemann, with respect Phoenix-Seneca Mid-Cap Growth Series to
Seneca, and with respect to Phoenix-Schafer Mid-Cap Value Series to Schafer for
which they are paid a fee by PIC. In accordance with the subadvisory agreement
between the Fund and J.P. Morgan, J.P. Morgan is paid a monthly fee at the
annual rate of .25% of the average aggregate daily net asset values of the
Phoenix Research Enhanced Index Series up to $100 million and .20% of such value
in excess of $100 million. Pursuant to the subadvisory agreement between the
Fund and Engemann, Engemann is paid a monthly fee at the annual rate of .45% of
the average aggregate daily net asset values of the Phoenix-Engemann Nifty Fifty
Series up to $250,000,000, .45% of such values between $250,000,000 and
$500,000,000, and .40% of such values in excess of $500,000,000. Pursuant to the
subadvisory agreement between the Fund and Seneca, Seneca is paid a monthly fee
at the annual rate of .40% of the average aggregate daily net asset values of
the Phoenix-Seneca Mid-Cap Growth Series. In accordance with the subadvisory
agreement between the Fund and Schafer, Schafer is paid a monthly fee at the
annual rate of .85% of the average aggregate daily net asset values of the
Phoenix-Schafer Mid-Cap Value Series up to $175 million and .80% of such value
in excess of $175 million. The subadvisory agreements relating to the Phoenix
Research Enhanced Index, Phoenix-Engemann Nifty Fifty, Phoenix-Seneca Mid-Cap
Growth and Phoenix-Schafer Mid-Cap Value Series provide, among other things,
that J.P. Morgan, Engemann, Seneca and Schafer shall effectuate the purchase and
sales of securities for the Series and provide related advisory services.
For providing research and other domestic advisory services to the
Phoenix-Aberdeen New Asia Series, PAIA pays to PIC a monthly subadvisory fee at
an annual rate equivalent to .30% of the average aggregate daily net asset value
of the Series. For implementing certain portfolio transactions and providing
research and other services to the Series, PAIA also pays a monthly subadvisory
fee to Aberdeen Fund Managers, Inc. equivalent to .40% of the average aggregate
daily net asset value of the Series. For implementing certain portfolio
transactions, providing research and other services with regard to i.e.
investments in particular geographic areas, Aberdeen Fund Managers, Inc. shall
engage the services of its affiliates, Aberdeen Fund Managers Ltd. and Aberdeen
Asset Management Asia Limited for which such entities shall be paid a fee by
Aberdeen Fund Managers, Inc.
CUSTODIAN
- --------------------------------------------------------------------------------
The securities and cash of the Phoenix-Goodwin Multi-Sector Fixed Income,
Phoenix-Goodwin Money Market, Phoenix-Goodwin Growth, Phoenix-Goodwin Strategic
Allocation, Phoenix-Goodwin Balanced and Phoenix-Goodwin Strategic Theme Series
are held by The Chase Manhattan Bank, N.A. under the terms of a custodian
agreement. The address for The Chase Manhattan Bank, N.A., is 1 Chase Manhattan
Plaza, Floor 13B, New York, NY 10081. The securities and cash of the
Phoenix-Aberdeen International and Phoenix-Aberdeen New Asia Series are held by
Brown Brothers Harriman & Co. under the terms of a custodian agreement. The
address for Brown Brothers Harriman & Co. is 40 Water Street, Boston,
Massachusetts 02109, Attention: Manager, Securities Department. The securities
and cash of the Phoenix-Duff & Phelps Real Estate Securities, Phoenix-Oakhurst
Growth and Income, Phoenix-Hollister Value Equity, Phoenix-Engemann Nifty Fifty,
Phoenix-Seneca Mid-Cap Growth, Phoenix-Schafer Mid-Cap Value and Phoenix
Research Enhanced Index Series are held by State Street Bank and Trust Company,
located at 1 Heritage Drive, P2N, North Quincy, Massachusetts 02171. The Fund
permits the Custodian to deposit some or all of its securities in central
depository systems as allowed by Federal law. The use of foreign custodians and
foreign central depositories has been authorized by the Board of Trustees of the
Fund if certain conditions are met.
FOREIGN CUSTODIAN
- --------------------------------------------------------------------------------
The Fund may use a foreign custodian in connection with its purchases of
foreign securities and may maintain
31
<PAGE>
cash and cash equivalents in the care of a foreign custodian. The amount of cash
or cash equivalents maintained in the care of eligible foreign custodians will
be limited to an amount reasonably necessary to effect the Fund's foreign
securities transactions. The use of a foreign custodian involves considerations
which are not ordinarily associated with domestic custodians. These
considerations include the possibility of expropriations, restricted access to
books and records of the foreign custodian, inability to recover assets that are
lost while under the control of the foreign custodian, and the impact of
political, social or diplomatic developments.
INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Fund's financial statements are audited by PricewaterhouseCoopers LLP,
160 Federal Street, Boston, Massachusetts 02110, independent accountants for the
Fund. The independent accountants also provide other accounting and tax-related
services as requested by the Fund from time to time.
FINANCIAL AGENT
Under a Financial Agent Agreement, PEPCO acts as financial agent of the Fund
and, as such, is responsible for certain administrative functions and the
bookkeeping and pricing functions for the Fund. For its services as financial
agent, PEPCO receives a fee based on the average of the aggregate daily net
asset values of the Fund at the annual rate per each $1,000,000 of $600. PFPC,
Inc. has been retained by PEPCO to perform certain administrative and pricing
services for the Fund for which PEPCO pays PFPC a fee. While PEPCO has delegated
certain responsibilities to PFPC, PEPCO retains full responsibility for the
performance of all duties of financial agent.
BROKERAGE ALLOCATION
- --------------------------------------------------------------------------------
In effecting portfolio transactions for the Fund, the Advisers and
Subadvisers, adhere to the Fund's policy of seeking best execution and price,
determined as described below, except to the extent it is permitted to pay
higher brokerage commissions for "brokerage and research services" as defined
herein. The Advisers may cause the Fund to pay a broker an amount of commission
for effecting a securities transaction in excess of the amount of commission
which another broker or dealer would have charged for effecting the transaction,
if the Advisers determine in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker. As provided in Section 28(e) of the Securities Exchange
Act of 1934, "brokerage and research services" include giving advice as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities; furnishing analyses and reports
concerning issuers, industries, economic factors and trends, portfolio strategy
and the performance of accounts; and effecting securities transactions and
performing functions incidental thereto (such as clearance and settlement).
Brokerage and research services provided by brokers to the Fund or to the
Advisers are considered to be in addition to and not in lieu of services
required to be performed by the Advisers under their contracts with the Fund
under their contracts with the Advisers and may benefit both the Fund and other
clients of the Advisers. Conversely, brokerage and research services provided by
brokers to other clients of the Advisers may benefit the Fund.
If the securities in which a particular Series of the Fund invests are
traded primarily in the over-the-counter market, where possible the Series will
deal directly with the dealers who make a market in the securities involved
unless better prices and execution are available elsewhere. Such dealers usually
act as principals for their own account. On occasion, securities may be
purchased directly from the issuer. Bonds and money market instruments are
generally traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes.
The determination of what may constitute best execution and price in the
execution of a securities transaction by a broker involves a number of
considerations including, without limitation, the overall direct net economic
result to the Fund (involving both price paid or received and any commissions
and other costs paid), the efficiency with which the transaction is effected,
the ability to effect the transaction at all where a large block is involved,
the availability of the broker to stand ready to execute possibly difficult
transactions in the future and the financial strength and stability of the
broker. Such considerations are judgmental and are weighed by the Advisers in
determining the overall reasonableness of brokerage commissions paid by the
Fund.
For the fiscal years ended December 31, 1996, 1997, and 1998 brokerage
commissions paid by the Fund on portfolio transactions totaled $6,749,696,
$10,220,704 and $4,487,103, respectively. None of such commissions was paid to a
broker who was an affiliated person of the Fund or an affiliated person of such
a person or, to the knowledge of the Fund, to a broker an affiliated person of
which was an affiliated person of the Fund or the Adviser. Total brokerage
commissions paid during the fiscal year ended December 31, 1998 included
brokerage commissions of $3,822,400 on portfolio transactions aggregating
$3,913,541,000 executed by brokers who provided research and other statistical
and factual information.
It may frequently happen that the same security is held in the portfolio of
more than one fund. Simultaneous transactions are inevitable when several funds
are managed by the same investment adviser, particularly when the same security
is suited for the investment objectives of more than one fund. When two or more
funds advised by the Advisers are simultaneously engaged in the purchase or sale
of the
32
<PAGE>
same security, the transactions are allocated among the funds in a manner
equitable to each fund. It is recognized that in some cases this system could
have a detrimental effect on the price or volume of the security as far as the
Fund is concerned. In other cases, however, it is believed that the ability of
the Fund to participate in volume transactions will produce better executions
for the Fund. It is the opinion of the Board of Trustees of the Fund that the
desirability of utilizing the Advisers as investment advisers to the Fund as
manager of foreign securities owned by the Fund outweighs the disadvantages that
may be said to exist from simultaneous transactions.
The Fund has adopted a policy and procedures governing the execution of
aggregated advisory client orders ("bunching procedures") in an attempt to lower
commission costs on a per-share and per-dollar basis. According to the bunching
procedures, the Adviser shall aggregate transactions unless it believes in its
sole discretion that such aggregation is consistent with its duty to seek best
execution (which shall include the duty to seek best price) for the Fund. No
advisory account of the Adviser is to be favored over any other account and each
account that participates in an aggregated order is expected to participate at
the average share price for all transactions of the Adviser in that security on
a given business day, with all transaction costs shared pro rata based on the
Fund's participation in the transaction. If the aggregated order is filled in
its entirety, it shall be allocated among the Adviser's accounts in accordance
with the allocation order, and if the order is partially filled, it shall be
allocated pro rata based on the allocation order. Notwithstanding the foregoing,
the order may be allocated on a basis different from that specified in the
allocation order if all accounts of the Adviser whose orders are allocated
receive fair and equitable treatment and the reason for such different
allocation is explained in writing and is approved in writing by the Adviser's
compliance officer as soon as practicable after the opening of the markets on
the trading day following the day on which the order is executed. If an
aggregated order is partially filled and allocated on a basis different from
that specified in the allocation order, no account that is benefited by such
different allocation may intentionally and knowingly effect any purchase or sale
for a reasonable period following the execution of the aggregated order that
would result in it receiving or selling more shares than the amount of shares it
would have received or sold had the aggregated order been completely filled. The
Trustees will annually review these procedures or as frequently as shall appear
appropriate.
DETERMINATION OF NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each Series is determined as of the close
of regular trading of the NYSE on days when the NYSE is open for trading. The
NYSE will be closed on the following observed national holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Since the Fund
does not price securities on weekends or United States national holidays, the
net asset value of a Series' foreign assets may be significantly affected on
days when the investor has no access to the Fund. The net asset value per share
of a Series is determined by adding the values of all securities and other
assets of the Series, subtracting liabilities and dividing by the total number
of outstanding shares of the Series. Assets and liabilities are determined in
accordance with generally accepted accounting principles and applicable rules
and regulations of the SEC.
A security that is listed or traded on more than one exchange is valued at
the quotation on the NYSE determined to be the primary exchange for such
security by the Trustees or their delegates. Because of the need to obtain
prices as of the close of trading on various exchanges throughout the world, the
calculation of net asset value may not take place for any Series which invests
in foreign securities contemporaneously with the determination of the prices of
the majority of the portfolio securities of such Series. All assets and
liabilities initially expressed in foreign currency values will be converted
into United States dollar values at the mean between the bid and ask quotations
of such currencies against United States dollars as last quoted by any
recognized dealer. If an event were to occur after the value of an investment
was so established but before the net asset value per share was determined,
which was likely to materially change the net asset value, then the instrument
would be valued using fair value considerations by the Trustees or their
delegates. If at any time a Series has investments where market quotations are
not readily available, such investments are valued at the fair value thereof as
determined in good faith by the Trustees although the actual calculations may be
made by persons acting pursuant to the direction of the Trustees.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
Shares of the Fund are not available to the public directly. Although shares
of the Fund are owned by the Accounts, Contract Owners and Policyowners do have
voting rights with respect to those shares, as described in the Prospectus under
"Shares of Beneficial Interest." You may invest in the Fund by buying a Variable
Accumulation Annuity Contract or a Variable Universal Life Insurance Policy from
Phoenix, PHL Variable or PLAC and directing the allocation of the net purchase
payment(s) to the Subaccounts corresponding to the Series of the Fund. Phoenix,
PHL Variable and PLAC will, in turn, invest payments in shares of the Fund as
the investor directs at net asset value next determined with no sales load.
SALES CHARGE AND SURRENDER CHARGES
The Fund does not assess any sales charge, either when it sells or when it
redeems securities. The sales charges which may be assessed under the Contracts
or Policies are
33
<PAGE>
described in the accompanying prospectus, as are other charges.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
The Fund will redeem any shares presented by the shareholder Accounts for
redemption. The Account's policies on when and whether to buy or redeem Fund
shares are described in the accompanying prospectus.
At the discretion of the Trustees, the Fund may, to the extent consistent
with state and Federal law, make payment for shares of a particular Series
repurchased or redeemed in whole or in part in securities or other assets of
such Series taken at current values. Should payment be made in securities, the
shareholder Accounts may incur brokerage costs in converting such securities to
cash.
The right of redemption may be suspended or the payment date postponed for
more than seven days only for any period during which trading on the NYSE is
closed for other than customary weekend and holiday closings, or when trading on
the NYSE is restricted, as determined by the SEC, for any period when an
emergency (as defined by rules of the Commission) exists, or during any period
when the Commission has, by order, permitted such suspension. In case of a
suspension of the right of redemption, the shareholders may withdraw requests
for redemption of shares prior to the next determination of net asset value
after the suspension has been terminated or they will receive payment of the net
asset value so determined.
The shareholder Accounts may receive more or less than was paid for the
shares, depending on the net asset value of the shares at the time they are
repurchased or redeemed.
TAXES
- -------------------------------------------------------------------------------
As stated in the Prospectus, it will be the policy of the Fund and of each
Series to comply with those provisions of the Internal Revenue Code of 1986, as
amended, ("Code") which relieve investment companies that distribute
substantially all of their net income from Federal income tax on the amounts
distributed. The Fund also intends to comply with pertinent Code provisions in
order to avoid imposition of any Federal excise tax. Dividends derived from
interest and distributions of any realized capital gains are taxable, under
Subchapter M, to the Fund's Shareholders, which in this case are the Accounts.
Federal income taxation of separate accounts, life insurance companies, and
unit investment trusts are discussed in the accompanying prospectus for the
Account.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements and the notes thereto relating to the Fund and the
report of PricewaterhouseCoopers LLP with respect thereto for the fiscal year
ended December 31, 1998 are contained in the Fund's Annual Report. The Annual
Report is available by calling Variable Products Operations at (800) 447-4312 or
writing to Phoenix Variable Products Mail Operations, P.O. Box 8027, Boston, MA
02266-8027. Phoenix, PHL Variable and PLAC have agreed to send a copy of both
the Annual Report and the Semiannual Report to Shareholders containing the
Fund's financial statements to every Contract Owner or Policyowner having an
interest in the Accounts. The Annual Report for the fiscal period ended December
31, 1998 is included in this SAI.
34
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
THE PHOENIX EDGE SERIES FUND
[LOGO] PHOENIX
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Phoenix Money Market Series............................................... 2
Phoenix Growth Series..................................................... 7
Phoenix Multi-Sector Fixed Income Series.................................. 12
Phoenix Strategic Allocation Series....................................... 19
Phoenix International Series.............................................. 26
Phoenix Balanced Series................................................... 34
Phoenix Real Estate Securities Series..................................... 42
Phoenix Strategic Theme Series............................................ 47
Phoenix Aberdeen New Asia Series.......................................... 52
Phoenix Research Enhanced Index Series.................................... 59
Engemann Nifty Fifty Series............................................... 67
Seneca Mid-Cap Growth Series.............................................. 72
Phoenix Growth and Income Series.......................................... 76
Phoenix Value Equity Series............................................... 83
Schafer Mid-Cap Value Series.............................................. 88
Notes to Financial Statements............................................. 92
</TABLE>
Not FDIC Insured No Bank Guarantee May Lose Value
<PAGE>
MONEY MARKET SERIES
INVESTOR PROFILE
Phoenix Money Market Series is appropriate for investors seeking competitive
money market yields with minimal risk to principal. Investors should note that
an investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of an investor's investment at $10.00 per share, it is
possible to lose money by investing in the Fund.
INVESTMENT ADVISER'S REPORT
The Phoenix Money Market Series seven-day current yield was 4.05%(1). The
primary factors that affected performance were the growing global economic
crises and unstable markets. Safety and liquidity concerns caused an inflow of
cash into the Fund. A very evident liquidity crisis prompted the Federal Reserve
to lower rates on September 29, 1998 and then twice more on October 15 and
November 17, resulting in a total decrease of 75 basis points within a very
short time.
The Fund's weighted average maturity at the time of this writing is 42 days.
At the November, 1998 meeting of the Federal Reserve Board, a neutral bias was
adopted due to stable financial markets and above-trend growth. The Fund is
continuously monitored and adjusted to reflect current market conditions.
OUTLOOK
The domestic fundamentals in the economy remain moderately strong, with
historically low inflation. The breadth of the liquidity crisis and its impact
on the financial markets will be a focus going forward, in our opinion. The
market will continue to question the real strength in the domestic economy and
whether we will see further deterioration in the financial markets, which could
prompt the Federal Reserve to lower rates once again.
MONTHLY YIELD COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
IBC MONEY
MONEY MARKET MARKET
DATE SERIES INDEX *
<S> <C> <C>
30-Jan-98 5.09% 5.03%
27-Feb-98 5.01% 4.96%
31-Mar-98 4.91% 4.93%
30-Apr-98 4.86% 4.91%
29-May-98 4.76% 4.91%
30-Jun-98 4.93% 4.92%
31-Jul-98 4.98% 4.92%
31-Aug-98 5.06% 4.91%
30-Sep-98 5.05% 4.90%
30-Oct-98 5.13% 4.72%
30-Nov-98 5.09% 4.60%
31-Dec-98 4.88% 4.53%
7 day yield as of 12/31/98: 4.05%
</TABLE>
The above graph covers the period from January 1, 1998 to December 31, 1998. The
results are not indicative of the rate of return which may be realized from an
investment made in the Money Market Series today.
* Average monthly yield of First Tier Money Market Funds as reported by IBC's
Money Market Insight.
(1) Current yield is a seven-day annualized yield computed by dividing the
average net income earned per share during the seven days preceding the date
of calculation by the average daily net asset value per share for the same
period multiplied by 365.
2
<PAGE>
MONEY MARKET SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FACE
VALUE INTEREST RESET
(000) DESCRIPTION RATE DATE VALUE
- - ------- --------------------------------------------- -------- -------- ------------
<C> <S> <C> <C> <C>
FEDERAL AGENCY SECURITIES--VARIABLE(B)--14.4%
$ 3,500 FFCB (final maturity 4/1/99)................. 4.81% 1/4/99 $ 3,500,000
4,500 FFCB (final maturity 7/24/00)................ 5.04 1/4/99 4,500,857
2,000 FHLB (final maturity 1/22/99)................ 4.90 1/22/99 1,994,283
2,500 FHLB (final maturity 11/17/99)............... 5.12 2/17/99 2,500,387
2,000 FNMA (final maturity 4/9/99)................. 5.10 1/9/99 1,999,732
3,500 FNMA (final maturity 9/17/99)................ 5.04 3/17/99 3,498,510
217 SBA (final maturity 1/25/21)................. 5.25 1/1/99 217,014
241 SBA (final maturity 5/25/21)................. 5.75 1/1/99 241,021
1,871 SBA (final maturity 10/25/22)................ 5.75 1/1/99 1,872,189
2,206 SBA (final maturity 2/25/23)................. 5.75 1/1/99 2,206,442
1,976 SBA (final maturity 2/25/23)................. 5.75 1/1/99 1,976,085
2,951 SBA (final maturity 9/25/23)................. 5.63 1/1/99 2,949,263
1,000 SLMA (final maturity 2/22/99)................ 4.84 1/5/99 1,000,000
------------
TOTAL FEDERAL AGENCY SECURITIES--VARIABLE.................................... 28,455,783
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
FACE & POOR'S
VALUE RATING MATURITY
(000) DESCRIPTION (UNAUDITED) DATE VALUE
- - ------- ------------------------------------- ----------- -------- ------------
<C> <S> <C> <C> <C> <C>
COMMERCIAL PAPER--80.3%
1,350 Greenwich Funding Corp............... A-1+ 5.50 1/4/99 1,349,381
6,030 Receivables Capital Corp............. A-1+ 5.50 1/4/99 6,027,236
955 Marsh & McLennan Cos., Inc........... A-1+ 6.00 1/6/99 954,204
2,450 SBC Communications, Inc.............. A-1+ 5.95 1/6/99 2,447,975
2,000 Coca-Cola Co......................... A-1+ 5.50 1/7/99 1,998,167
1,450 Sara Lee Corp........................ A-1+ 5.50 1/7/99 1,448,671
1,702 General Electric Capital Corp........ A-1+ 5.45 1/8/99 1,700,196
Preferred Receivables Funding
1,580 Corp................................. A-1 5.25 1/8/99 1,578,387
2,500 Corporate Asset Funding Co., Inc..... A-1+ 5.33 1/11/99 2,496,299
739 Greenwich Funding Corp............... A-1+ 5.55 1/11/99 737,861
2,500 Corporate Asset Funding Co., Inc..... A-1+ 5.15 1/12/99 2,496,066
2,790 Potomac Electric Power Co............ A-1 5.23 1/12/99 2,785,541
4,290 Citigroup, Inc....................... A-1+ 5.20 1/14/99 4,281,944
1,329 Greenwich Funding Corp............... A-1+ 5.25 1/14/99 1,326,480
1,650 Greenwich Funding Corp............... A-1+ 5.36 1/14/99 1,646,806
1,105 Pitney Bowes, Inc.................... A-1+ 4.95 1/14/99 1,103,025
458 Receivables Capital Corp............. A-1+ 5.45 1/14/99 457,099
2,057 Receivables Capital Corp............. A-1+ 5.40 1/19/99 2,051,446
2,500 Potomac Electric Power Co............ A-1 5.30 1/20/99 2,493,007
3,500 Corporate Receivables Corp........... A-1+ 5.22 1/21/99 3,489,850
3,000 Lexington Parker Capital Co. LLC..... A-1 5.26 1/22/99 2,990,795
935 Potomac Electric Power Co............ A-1 5.50 1/26/99 931,429
3,000 AlliedSignal, Inc.................... A-1 5.50 1/27/99 2,988,083
2,500 Lexington Parker Capital Co. LLC..... A-1 5.42 1/27/99 2,490,214
705 Vermont American Corp................ A-1+ 5.45 1/27/99 702,225
2,000 CXC, Inc............................. A-1+ 5.44 1/28/99 1,991,840
1,685 Wisconsin Electric Power Co.......... A-1+ 5.40 1/28/99 1,678,176
Associates Corporation of North
3,000 America.............................. A-1+ 5.04 1/29/99 2,988,240
2,500 Merrill Lynch & Co................... A-1+ 5.10 1/29/99 2,490,083
3,200 Wisconsin Electric Power Co.......... A-1+ 5.50 1/29/99 3,186,311
940 General Electric Capital Corp........ A-1+ 5.43 2/1/99 935,605
2,760 Greenwich Asset Funding Corp......... A-1+ 5.55 2/1/99 2,746,810
Preferred Receivables Funding
2,500 Corp................................. A-1 5.32 2/1/99 2,488,547
Preferred Receivables Funding
1,370 Corp................................. A-1 5.40 2/2/99 1,363,424
Preferred Receivables Funding
465 Corp................................. A-1 5.40 2/2/99 462,768
2,500 Vermont American Corp................ A-1+ 5.27 2/3/99 2,487,923
Preferred Receivables Funding
570 Corp................................. A-1 5.33 2/4/99 567,131
1,295 Coca-Cola Co......................... A-1+ 5.12 2/5/99 1,288,554
3,500 Ford Motor Credit Co................. A-1+ 5.15 2/5/99 3,482,476
1,000 Wisconsin Electric Power Co.......... A-1+ 5.25 2/5/99 994,896
2,000 Marsh & McLennan Cos., Inc........... A-1+ 5.50 2/8/99 1,988,389
2,500 Corporate Receivables Corp........... A-1+ 5.15 2/10/99 2,485,695
1,000 Merrill Lynch & Co................... A-1+ 5.20 2/10/99 994,222
3,700 Heinz (H.J.) Co...................... A-1 5.22 2/12/99 3,677,467
</TABLE>
See Notes to Financial Statements
3
<PAGE>
MONEY MARKET SERIES
<TABLE>
<CAPTION>
STANDARD
FACE & POOR'S
VALUE RATING INTEREST MATURITY
(000) DESCRIPTION (UNAUDITED) RATE DATE VALUE
- - ------- ------------------------------------- ----------- ------ -------- ------------
<C> <S> <C> <C> <C> <C>
COMMERCIAL PAPER--CONTINUED
$ 2,500 Lexington Parker Capital Co. LLC..... A-1 5.35% 2/12/99 $ 2,484,396
Preferred Receivables Funding
3,000 Corp................................. A-1 5.35 2/16/99 2,979,492
2,500 Beta Finance, Inc.................... A-1+ 5.27 2/18/99 2,482,433
2,500 Goldman Sachs & Co................... A-1+ 5.08 2/24/99 2,480,950
2,000 Goldman Sachs & Co................... A-1+ 5.18 2/24/99 1,984,460
2,500 Marsh & McLennan Cos., Inc........... A-1+ 5.23 2/25/99 2,480,024
3,000 Goldman Sachs & Co................... A-1+ 5.24 2/26/99 2,975,547
1,700 Marsh & McLennan Cos., Inc........... A-1+ 5.30 2/26/99 1,685,984
1,000 Coca-Cola Co......................... A-1+ 5.02 3/1/99 991,773
2,500 General Electric Capital Corp........ A-1+ 5.13 3/4/99 2,500,000
2,000 Deutsche Bank Financial Corp......... A-1+ 5.70 3/5/99 1,999,457
3,000 Dupont (E.I) de Nemours & Co......... A-1+ 5.05 3/9/99 2,971,804
2,500 Colgate-Palmolive Co................. A-1 5.05 3/12/99 2,475,451
1,250 Enterprise Funding Corp.............. A-1 5.22 3/15/99 1,236,769
2,500 Beta Finance, Inc.................... A-1+ 5.73 3/16/99 2,500,123
2,500 Schering Corp........................ A-1+ 5.02 3/16/99 2,474,203
788 Enterprise Funding Corp.............. A-1 5.12 3/19/99 779,371
3,000 Chase Manhattan Bank................. A-1+ 5.22 3/22/99 3,000,235
1,500 Coca-Cola Co......................... A-1+ 5.00 3/22/99 1,483,333
4,070 Greenwich Funding Corp............... A-1+ 5.15 3/25/99 4,021,674
2,500 Marsh & McLennan Cos., Inc........... A-1+ 5.19 3/25/99 2,470,085
2,500 Colgate-Palmolive Co................. A-1 5.00 4/5/99 2,467,361
2,500 Beta Finance, Inc.................... A-1+ 5.00 4/6/99 2,467,014
1,300 Corporate Asset Funding Co., Inc..... A-1+ 5.45 4/15/99 1,279,532
2,500 Asset Securitization Cooperative..... A-1+ 5.08 4/16/99 2,462,958
3,000 Chase Manhattan Bank................. A-1+ 4.86 4/21/99 3,000,000
2,500 Private Export Funding Corp.......... A-1+ 4.68 5/6/99 2,459,375
1,360 Beta Finance, Inc.................... A-1+ 5.01 5/17/99 1,334,260
2,845 Greenwich Asset Funding Corp......... A-1+ 5.10 5/18/99 2,789,783
------------
TOTAL COMMERCIAL PAPER.......................................................... 157,988,791
------------
MEDIUM-TERM NOTES--4.4%
575 General Electric Capital Corp........ A-1+ 8.10 1/26/99 575,855
Associates Corporation of North
2,000 America.............................. A-1+ 6.25 3/15/99 2,002,175
1,500 General Electric Capital Corp........ A-1+ 5.98 3/19/99 1,500,768
2,500 General Electric Capital Corp.(b).... A-1+ 5.14 6/4/99 2,505,525
Associates Corporation of North
1,500 America.............................. A-1+ 5.65 6/15/99 1,498,891
Associates Corporation of North
600 America.............................. A-1+ 6.75 10/15/99 608,296
------------
TOTAL MEDIUM-TERM NOTES......................................................... 8,691,510
------------
TOTAL INVESTMENTS--99.1%
(Identified cost $195,136,084)................................................ 195,136,084(a)
Cash and receivables, less liabilities--0.9%.................................. 1,675,137
------------
NET ASSETS--100.0%.............................................................. $196,811,221
------------
------------
</TABLE>
(a) Federal Income Tax information: At December 31, 1998, the aggregate cost of
securities was the same for book and tax purposes.
(b) Variable rate demand notes. The interest rates shown reflect the rates
currently in effect.
See Notes to Financial Statements
4
<PAGE>
MONEY MARKET SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$195,136,084)............................................. $ 195,136,084
Cash........................................................ 27,357
Receivables
Fund shares sold.......................................... 2,426,087
Interest.................................................. 549,742
Prepaid expenses............................................ 3,418
-------------
Total assets............................................ 198,142,688
-------------
LIABILITIES
Payables
Fund shares repurchased................................... 1,161,522
Investment advisory fee................................... 74,750
Financial agent fee....................................... 16,912
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 73,223
-------------
Total liabilities....................................... 1,331,467
-------------
NET ASSETS.................................................. $ 196,811,221
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 196,811,221
-------------
NET ASSETS.................................................. $ 196,811,221
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 19,681,144
-------------
-------------
Net asset value and offering price per share................ $ 10.00
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 7,835,760
-------------
Total investment income................................. 7,835,760
-------------
EXPENSES
Investment advisory fee................................... 564,665
Financial agent fee....................................... 123,865
Custodian................................................. 30,083
Printing.................................................. 22,780
Professional.............................................. 20,755
Trustees.................................................. 12,172
Miscellaneous............................................. 6,246
-------------
Total expenses.......................................... 780,566
-------------
NET INVESTMENT INCOME....................................... 7,055,194
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 7,055,194
-------------
-------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
MONEY MARKET SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)............................................. $ 7,055,194 $ 6,261,529
----------------- ------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... 7,055,194 6,261,529
----------------- ------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.................................................... (7,055,197) (6,261,529)
----------------- ------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS................ (7,055,197) (6,261,529)
----------------- ------------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (47,209,211 and 35,987,251 shares,
respectively).......................................................... 472,092,185 359,872,496
Net asset value of shares issued from reinvestment of distributions
(705,519 and 626,153 shares, respectively)............................. 7,055,197 6,261,528
Cost of shares repurchased (40,894,255 and 37,088,873 shares,
respectively).......................................................... (408,942,852) (370,888,736)
----------------- ------------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS................ 70,204,530 (4,754,712)
----------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS.................................... 70,204,527 (4,754,712)
NET ASSETS
Beginning of period...................................................... 126,606,694 131,361,406
----------------- ------------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $0
AND $3, RESPECTIVELY).................................................. $ 196,811,221 $ 126,606,694
----------------- ------------------
----------------- ------------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.50 0.50 0.50 0.56 0.38(1)
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS.................... 0.50 0.50 0.50 0.56 0.38
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.50) (0.50) (0.50) (0.56) (0.38)
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............. (0.50) (0.50) (0.50) (0.56) (0.38)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return........................ 5.09% 4.99% 4.98% 5.55% 3.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $196,811 $126,607 $131,361 $102,943 $94,586
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.55% 0.55% 0.55% 0.53%(2) 0.55%
Net investment income............. 4.99% 5.07% 4.89% 5.57% 3.85%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.003
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
See Notes to Financial Statements
6
<PAGE>
GROWTH SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term appreciation through
investments in common stocks.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 30.01%,
outperforming the 28.76% return of the S&P 500 Index.(1) All performance figures
assume reinvestment of distributions and are net of sales charges.
While 1998 turned out to be an excellent year for the U.S. stock market, it
was marked with exceptional volatility. Last year was also marked by a large
disparity in returns between asset classes. Small-capitalization stocks
continued to underperform and profitability at many cyclical companies came
under pressure due to weakness in the international markets and falling
commodity prices. Recognizing these trends, we focused our stock selection on
large-capitalization companies with predictable revenue streams and a domestic
focus. The portfolio's heavy bias towards large-cap names and its overweighting
in the health-care, consumer staples and technology sectors were the primary
drivers for our strong performance last year.
Specific to the fourth quarter, positive contributors to the portfolio's
above-average results included our top-down strategy of overweighting
technology, communication services and consumer staples as well as strong stock
selection in each of these sectors. Despite the obvious temptation to raise cash
during this summer's sell-off, our decision to remain fully invested in stocks
also paid off handsomely as the market has rebounded dramatically from its early
October lows. On the other side of the equation, the most notable factor that
held back performance over this latest reporting period was the portfolio's
underweighted position in the strongly performing consumer cyclical group during
the final quarter. While we were not expecting a recession anytime soon, we were
somewhat surprised by the strength of the U.S consumer over this latest quarter.
OUTLOOK
As we enter 1999, the stock market and U.S. economy continue to be strong.
Despite some weakness in exports and the manufacturing sector, robust consumer
spending has made the U.S. economy the strongest in the industrialized world.
Recent data on employment, personal income, consumer spending, and consumer
confidence are all encouraging. Yet, there is a fundamental disconnect between
the economy and corporate profits. Profits for 1998 were about flat with 1997,
and we expect only slight improvement this year. This tough earnings environment
over the past year benefited steady growth groups such as health-care and
communication services. We don't see this changing for the foreseeable future.
Actually, we see the torrid pace of economic growth slowing somewhat in 1999.
Overall, we remain cautiously optimistic on the market. While we expect
corporate profits to remain under pressure, this current environment of benign
inflation and historically low interest rates should continue to be a positive
catalyst for financial assets. After four straight years of double-digit gains,
it is also likely that we will see more normalized (single-digit) returns for
U.S. equities in 1999. Lastly, we believe that the financial markets will remain
volatile over the near term, as there are still many crosscurrents at work in
the global financial systems.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH SERIES S&P 500 INDEX(1)
<S> <C> <C>
12/31/1988 $10,000.00 $10,000.00
12/31/1989 $13,605.95 $13,143.49
12/31/1990 $14,162.17 $12,723.63
12/31/1991 $20,352.54 $16,609.89
12/31/1992 $22,446.69 $17,887.30
12/31/1993 $26,867.26 $19,676.05
12/31/1994 $27,264.69 $19,936.37
12/31/1995 $35,674.71 $27,413.96
12/31/1996 $40,162.38 $33,787.07
12/31/1997 $48,625.91 $45,063.71
12/31/1998 $63,220 $58,022
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/98
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- - ---------------------------------------------------------------------
Growth Series 30.01% 18.67% 20.25%
- - ---------------------------------------------------------------------
S&P 500 Index 28.76% 24.15% 19.22%
- - ---------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/88.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
(1) The S&P 500 Index is an unmanaged, commonly used measure of total return
stock market performance. The Index is not available for direct investment.
7
<PAGE>
GROWTH SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
----------- ----------------
<S> <C> <C> <C>
COMMON STOCKS--98.3%
BANKS (MAJOR REGIONAL)--3.7%
Bank One Corp........................................... 324,852 $ 16,587,755
Mellon Bank Corp........................................ 203,800 14,011,250
U.S. Bancorp............................................ 261,800 9,293,900
Wells Fargo & Co........................................ 730,000 29,154,375
----------------
69,047,280
----------------
BANKS (MONEY CENTER)--1.3%
BankAmerica Corp........................................ 411,887 24,764,706
----------------
BEVERAGES (ALCOHOLIC)--1.0%
Anheuser-Busch Companies, Inc........................... 285,800 18,755,625
----------------
BEVERAGES (NON-ALCOHOLIC)--1.5%
PepsiCo, Inc............................................ 706,700 28,930,531
----------------
BROADCASTING (TELEVISION, RADIO & CABLE)--4.9%
CBS Corp................................................ 283,400 9,281,350
Chancellor Media Corp. (b).............................. 228,200 10,925,075
Clear Channel Communications, Inc. (b).................. 175,800 9,581,100
Fox Entertainment Group, Inc. Class A (b)............... 228,800 5,762,900
Liberty Media Group Class A (b)......................... 502,100 23,127,981
Tele-Communications, Inc. Class A (b)................... 594,200 32,866,687
----------------
91,545,093
----------------
COMMUNICATIONS EQUIPMENT--0.8%
Tellabs, Inc. (b)....................................... 212,000 14,535,250
----------------
COMPUTERS (HARDWARE)--3.5%
International Business Machines Corp.................... 354,900 65,567,775
----------------
COMPUTERS (NETWORKING)--1.5%
Cisco Systems, Inc. (b)................................. 312,375 28,992,305
----------------
COMPUTERS (PERIPHERALS)--1.6%
EMC Corp. (b)........................................... 356,000 30,260,000
----------------
COMPUTERS (SOFTWARE & SERVICES)--11.8%
America Online, Inc. (b)................................ 119,500 19,120,000
BMC Software, Inc. (b).................................. 649,600 28,947,800
Compuware Corp. (b)..................................... 584,000 45,625,000
Edwards (J.D.) & Co. (b)................................ 227,600 6,458,150
HBO & Co................................................ 1,072,100 30,755,869
Microsoft Corp. (b)..................................... 450,500 62,478,719
Oracle Corp. (b)........................................ 401,100 17,297,437
Sterling Commerce, Inc. (b)............................. 241,601 10,872,045
----------------
221,555,020
----------------
CONSUMER FINANCE--1.2%
Capital One Financial Corp.............................. 203,600 23,414,000
----------------
DISTRIBUTORS (FOOD & HEALTH)--1.5%
Cardinal Health, Inc.................................... 365,400 27,724,725
----------------
ELECTRICAL EQUIPMENT--2.6%
General Electric Co..................................... 474,300 48,408,244
----------------
ELECTRONICS (SEMICONDUCTORS)--4.8%
Intel Corp.............................................. 656,000 77,777,000
Micron Technology, Inc.................................. 257,100 12,999,619
----------------
90,776,619
----------------
FINANCIAL (DIVERSIFIED)--4.9%
Citigroup, Inc.......................................... 542,150 26,836,425
Freddie Mac............................................. 660,100 42,535,194
Morgan Stanley, Dean Witter & Co. (b)................... 309,500 21,974,500
----------------
91,346,119
----------------
HEALTH CARE (DIVERSIFIED)--5.8%
Bristol-Myers Squibb Co. (b)............................ 383,400 51,303,712
Mylan Laboratories, Inc................................. 367,600 11,579,400
<CAPTION>
SHARES VALUE
----------- ----------------
<S> <C> <C> <C>
HEALTH CARE (DIVERSIFIED)--CONTINUED
Warner-Lambert Co....................................... 609,200 $ 45,804,225
----------------
108,687,337
----------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--6.7%
Pfizer, Inc............................................. 494,800 62,066,475
Schering-Plough Corp.................................... 751,800 41,536,950
Watson Pharmaceuticals, Inc. (b)........................ 357,700 22,490,387
----------------
126,093,812
----------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--3.7%
Baxter International, Inc. (b).......................... 351,600 22,612,275
Becton, Dickinson and Co................................ 175,700 7,500,194
Genzyme Corp............................................ 184,900 9,198,775
Medtronic, Inc.......................................... 403,400 29,952,450
----------------
69,263,694
----------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--2.1%
Clorox Co. (The)........................................ 59,200 6,915,300
Colgate-Palmolive Co.................................... 90,700 8,423,762
Procter & Gamble Co. (The) (b).......................... 269,800 24,636,112
----------------
39,975,174
----------------
INSURANCE (LIFE/HEALTH)--0.6%
UNUM Corp............................................... 193,600 11,301,400
----------------
INSURANCE (MULTI-LINE)--1.9%
American International Group, Inc....................... 241,850 23,368,756
ReliaStar Financial Corp................................ 246,700 11,379,037
----------------
34,747,793
----------------
LODGING--HOTELS--0.5%
Carnival Corp........................................... 204,500 9,816,000
----------------
MANUFACTURING (DIVERSIFIED)--2.1%
Tyco International Ltd.................................. 532,500 40,170,469
----------------
OIL & GAS (DRILLING & EQUIPMENT)--0.6%
Halliburton Co.......................................... 122,400 3,626,100
Schlumberger Ltd........................................ 79,400 3,662,325
Transocean Offshore, Inc................................ 120,500 3,230,906
----------------
10,519,331
----------------
OIL (DOMESTIC INTEGRATED)--1.8%
USX-Marathon Group...................................... 1,129,800 34,035,225
----------------
OIL (INTERNATIONAL INTEGRATED)--2.1%
Amoco Corp.............................................. 543,200 32,048,800
Conoco, Inc. Class A (b)................................ 320,200 6,684,175
----------------
38,732,975
----------------
RETAIL (BUILDING SUPPLIES)--1.8%
Home Depot, Inc. (The).................................. 558,500 34,173,219
----------------
RETAIL (COMPUTERS & ELECTRONICS)--0.4%
Tandy Corp. (b)......................................... 172,900 7,121,319
----------------
RETAIL (DRUG STORES)--4.0%
CVS Corp................................................ 655,500 36,052,500
Rite Aid Corp........................................... 779,200 38,619,100
----------------
74,671,600
----------------
RETAIL (FOOD CHAINS)--4.3%
Meyer (Fred), Inc. (b).................................. 548,590 33,052,548
Safeway, Inc. (b)....................................... 788,300 48,037,031
----------------
81,089,579
----------------
RETAIL (GENERAL MERCHANDISE)--0.8%
Wal-Mart Stores, Inc.................................... 173,500 14,129,406
----------------
RETAIL (SPECIALTY)--1.7%
Borders Group, Inc...................................... 379,500 9,463,781
</TABLE>
See Notes to Financial Statements
8
<PAGE>
GROWTH SERIES
<TABLE>
<CAPTION>
SHARES VALUE
----------- ----------------
<S> <C> <C> <C>
RETAIL (SPECIALTY)--CONTINUED
Staples, Inc. (b)....................................... 531,550 $ 23,222,091
----------------
32,685,872
----------------
SERVICES (COMMERCIAL & CONSUMER)--0.5%
ServiceMaster Co. (The)................................. 450,000 9,928,125
----------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--3.4%
AirTouch Communications, Inc. (b)....................... 879,100 63,405,088
----------------
TELECOMMUNICATIONS (LONG DISTANCE)--3.2%
AT&T Corp............................................... 359,400 27,044,850
MCI WorldCom, Inc. (b).................................. 455,794 32,703,220
----------------
59,748,070
----------------
TELEPHONE--2.0%
BellSouth Corp.......................................... 436,600 21,775,425
SBC Communications, Inc................................. 295,500 15,846,188
----------------
37,621,613
----------------
WASTE MANAGEMENT--1.7%
Waste Management, Inc................................... 678,300 31,625,738
----------------
TOTAL COMMON STOCKS
(Identified cost $1,331,834,475)...................................... 1,845,166,131
----------------
FOREIGN COMMON STOCKS--0.8%
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--0.8%
Elan Corp. PLC Sponsored ADR (Ireland) (b).............. 211,000 14,677,687
----------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $12,319,521)......................................... 14,677,687
----------------
TOTAL LONG-TERM INVESTMENTS--99.1%
(Identified cost $1,344,153,996)...................................... 1,859,843,818
----------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------------- ---------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--1.6%
COMMERCIAL PAPER--0.8%
Greenwich Funding Corp. 5.20%,
1/4/99........................................ A-1+ $ 3,000 $ 2,997,964
SBC. Communications Inc. 5.95%,
1/6/99........................................ A-1+ 3,770 3,766,885
Freddie Mac 5%, 1/8/99.......................... A-1+ 2,000 1,998,024
Pitney Bowes Credit Corp. 4.95%,
1/14/99....................................... A-1+ 5,945 5,934,373
Vermont American Corp. 5.45%,
1/27/99....................................... A-1+ 1,115 1,110,611
---------------
15,807,857
---------------
FEDERAL AGENCY SECURITIES--0.7%
FHLB 4.50%, 1/4/99.............................. 13,770 13,764,836
---------------
MEDIUM-TERM NOTES--0.1%
General Electric Capital Corp. 5.14%, 3/4/99
(c)........................................... A-1+ 1,000 999,900
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $30,575,635)................................................ 30,572,593
---------------
TOTAL INVESTMENTS--100.7%
(Identified cost $1,374,729,631)............................................. 1,890,416,411(a)
Cash and receivables, less liabilities--(0.7%)............................... (14,120,110)
---------------
NET ASSETS--100.0%............................................................. $ 1,876,296,301
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $532,916,550 and gross
depreciation of $15,547,346 for federal income tax purposes. At December
31, 1998, the aggregate cost of securities for federal income tax purposes
was $1,373,047,207.
(b) Non-income producing.
(c) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
See Notes to Financial Statements
9
<PAGE>
GROWTH SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$1,374,729,631)........................................... $ 1,890,416,411
Receivables
Investment securities sold................................ 12,648,491
Fund shares sold.......................................... 1,205,089
Dividends and interest.................................... 1,002,798
Prepaid expenses............................................ 32,273
---------------
Total assets............................................ 1,905,305,062
---------------
LIABILITIES
Payables
Custodian................................................. 25,163
Investment securities purchased........................... 26,232,303
Fund shares repurchased................................... 1,447,850
Investment advisory fee................................... 928,585
Financial agent fee....................................... 60,789
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 309,011
---------------
Total liabilities....................................... 29,008,761
---------------
NET ASSETS.................................................. $ 1,876,296,301
---------------
---------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 1,331,914,616
Undistributed net investment income....................... 1,285,201
Accumulated net realized gain............................. 27,409,704
Net unrealized appreciation............................... 515,686,780
---------------
NET ASSETS.................................................. $ 1,876,296,301
---------------
---------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 78,409,721
---------------
---------------
Net asset value and offering price per share................ $ 23.93
-------
-------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 11,511,581
Interest.................................................. 2,338,299
Foreign taxes withheld.................................... (83,354)
-------------
Total investment income................................. 13,766,526
-------------
EXPENSES
Investment advisory fee................................... 10,143,250
Financial agent fee....................................... 706,724
Custodian................................................. 174,982
Printing.................................................. 98,816
Professional.............................................. 44,009
Trustees.................................................. 13,431
Miscellaneous............................................. 83,231
-------------
Total expenses.......................................... 11,264,443
-------------
NET INVESTMENT INCOME....................................... 2,502,083
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 45,867,063
Net change in unrealized appreciation (depreciation) on
investments............................................. 390,908,702
-------------
NET GAIN ON INVESTMENTS..................................... 436,775,765
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 439,277,848
-------------
-------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
GROWTH SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- ---------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)....................................................... $ 2,502,083 $ 8,821,110
Net realized gain (loss)........................................................... 45,867,063 208,505,196
Net change in unrealized appreciation (depreciation)............................... 390,908,702 44,027,962
-------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................... 439,277,848 261,354,268
-------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income.............................................................. (2,092,243) (8,665,448)
Net realized gains................................................................. (67,564,709) (236,146,906)
-------------- ---------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS.......................... (69,656,952) (244,812,354)
-------------- ---------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (14,661,827 and 12,502,677 shares, respectively)..... 306,260,617 253,355,592
Net asset value of shares issued from reinvestment of distributions (3,143,060 and
12,750,840 shares, respectively)................................................. 69,656,952 244,812,354
Cost of shares repurchased (17,964,177 and 12,075,426 shares, respectively)........ (374,810,017) (244,536,540)
-------------- ---------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS..................................... 1,107,552 253,631,406
-------------- ---------------
NET INCREASE IN NET ASSETS......................................................... 370,728,448 270,173,320
NET ASSETS
Beginning of period................................................................ 1,505,567,853 1,235,394,533
-------------- ---------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $1,285,201 AND
$875,361, RESPECTIVELY).......................................................... $1,876,296,301 $1,505,567,853
-------------- ---------------
-------------- ---------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 19.16 $ 18.89 $ 18.13 $ 15.69 $ 16.59
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.03 0.13 0.19 0.20 0.23(1)(3)
Net realized and unrealized gain
(loss).......................... 5.65 3.70 2.10 4.60 0.02
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS.................... 5.68 3.83 2.29 4.80 0.25
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.03) (0.13) (0.18) (0.17) (0.23)
Dividends from net realized
gains........................... (0.88) (3.43) (1.35) (2.19) (0.92)
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............. (0.91) (3.56) (1.53) (2.36) (1.15)
----------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE........... 4.77 0.27 0.76 2.44 (0.90)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 23.93 $ 19.16 $ 18.89 $ 18.13 $ 15.69
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return........................ 30.01% 21.07% 12.58% 30.85% 1.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $1,876,296 $1,505,568 $1,235,395 $985,389 $616,221
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.69% 0.74% 0.72% 0.75%(2) 0.80%
Net investment income............. 0.15% 0.64% 1.03% 1.12% 1.38%
Portfolio turnover rate............. 102% 284% 167% 173% 185%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.003
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(3) Computed using average shares outstanding.
See Notes to Financial Statements
11
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking high current income. Investors
should note that the Fund may invest in emerging-markets debt and high-yield
securities. Foreign investments pose added risks, such as currency fluctuation,
less public disclosure, and political and economic uncertainty. High-yielding
fixed-income securities generally are subject to greater market fluctuations and
risk of loss of income and principal than are investments in lower-yielding
fixed-income securities.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned (4.02)%
compared with a return of 8.69% for the Lehman Brothers Aggregate Index.(1) In
contrast, the J.P. Morgan Emerging Market Bond Index Plus was down (14.35)% for
the same period.(2) All performance figures assume reinvestment of distributions
and are net of sales charges.
The disappointing performance was due to our exposure to more
credit-sensitive sectors of the bond market. During 1998, the world financial
markets have been experiencing a global "flight to quality" that has been driven
by the financial crises in Asia and Russia. U.S. Treasuries have been the sole
benefactor, while the biggest losers have been higher-yielding sectors, such as
emerging-markets and domestic high-yield, two of our largest portfolio
positions.
The two biggest risks in fixed income investing are interest rate risk and
credit risk. Our investment approach does not try to anticipate the direction of
interest rates. Instead, we seek to add value by identifying undervalued sectors
of the bond market. This contrarian approach is one that requires discipline and
conviction, but has served us well in the past. Of course, past performance is
no guarantee of future results.
We will continue to follow our value-oriented investment approach,
overweighting those sectors where we find the best values. Despite recent
weakness, our long-term outlook remains constructive. We feel the market has
overreacted to global events, resulting in extraordinary values for long-term
investors. We will continue to maintain well-diversified portfolios (investing
across 12 market sectors), with exposure to more credit-sensitive sectors, which
we perceive to be considerably undervalued.
OUTLOOK
It is important at times like this to keep a long-term perspective as
extreme market moves like the one we are currently experiencing generally
reverse themselves over time. We have seen a number of market events like this
over the last decade. Two that most resemble the current situation were the
"junk" bond panic of 1990-91 and the Mexican peso devaluation in 1994-95.
Although both of these events triggered dips in the market, long-term investors
were rewarded for their patience and conviction. Of course, past performance is
no guarantee of future performance, and there can be no assurance that there
will be a similar turnaround in emerging markets.
(1) The Lehman Brothers Aggregate Index is an unmanaged, commonly used measure
of broad bond market total return performance. The Index is not available
for direct investment.
(2) The J.P. Morgan Emerging Market Bond Index Plus is an unmanaged, commonly
used measure of emerging-market debt total return performance. The Index is
not available for direct investment.
12
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MULTI-SECTOR FIXED INCOME LEHMAN BROTHERS AGGREGATE BOND
SERIES INDEX*
<S> <C> <C>
12/31/1988 $10,000.00 $10,000.00
12/31/1989 $10,817.36 $11,453.45
12/31/1990 $11,385.31 $12,479.63
12/31/1991 $13,595.70 $14,476.73
12/31/1992 $14,959.31 $15,548.07
12/31/1993 $17,337.56 $17,064.12
12/31/1994 $16,388.58 $16,566.46
12/31/1995 $20,246.12 $19,627.75
12/31/1996 $22,760.36 $20,340.30
12/31/1997 $25,247.92 $22,303.70
12/31/1998 $24,234.00 $24,241.18
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/98
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- - -----------------------------------------------------------------------
Multi-Sector Fixed Income Series (4.02)% 6.93% 9.26%
- - -----------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index* 8.69% 7.27% 9.26%
- - -----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/88.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. High yield fixed income securities
generally are subject to greater market fluctuations and risk of loss of income
and principal than are investments in lower-yielding fixed income securities.
Foreign investing involves special risks such as currency fluctuation and less
public disclosure, as well as economic and political risks.
* The Lehman Brothers Aggregate Bond Index is an unmanaged but commonly used
measure of bond performance. The Index is not available for direct investment.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--2.0%
U.S. Treasury Notes 4.75%, 11/15/08.................. Aaa $ 1,250 $ 1,258,942
U.S. Treasury Notes 5.25%, 11/15/28.................. Aaa 2,400 2,456,955
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $3,691,391)................................................. 3,715,897
-------------
AGENCY MORTGAGE-BACKED SECURITIES--0.8%
GNMA 8%, 9/15/06..................................... Aaa 8 8,500
GNMA 8%, 10/15/06.................................... Aaa 129 134,825
GNMA 6.50%, '24-'26.................................. Aaa 1,305 1,325,406
-------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $1,427,614)................................................. 1,468,731
-------------
MUNICIPAL BONDS--11.9%
CALIFORNIA--1.6%
Orange County Pension Revenue Series A Taxable 7.67%,
9/1/09............................................. Aaa 2,620 2,990,075
-------------
COLORADO--1.2%
Denver City and County School District 01 Pension
Taxable 6.76%, 12/15/07............................ Aaa 2,000 2,140,000
-------------
FLORIDA--1.1%
Palm Beach County Solid Waste Industrial Development
Project B Revenue Taxable 10.50%, 1/1/11 (e)(f).... NR 1,500 750,000
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
FLORIDA--CONTINUED
University of Miami Exchangeable Revenue Series A
Taxable 7.65%, 4/1/20.............................. Aaa $ 1,290 $ 1,381,912
-------------
2,131,912
-------------
ILLINOIS--1.6%
Illinois Educational Facilities Authority-- Loyola
University Revenue Series A 5.70%, 7/1/24.......... Aaa 1,200 1,293,000
Illinois Educational Facilities Authority-- Loyola
University Revenue Series A Taxable 7.84%,
7/1/24............................................. Aaa 1,600 1,734,000
-------------
3,027,000
-------------
MASSACHUSETTS--3.3%
Massachusetts State Port Authority Revenue Series C
Taxable 6.35%, 7/1/06.............................. Aa 1,500 1,569,375
Massachusetts State Turnpike Authority Series A
Revenue 5%, 1/1/27................................. Aaa 2,125 2,095,781
Massachusetts State Water Resources Authority Revenue
Series D 5%,
8/1/24............................................. Aaa 2,500 2,468,750
-------------
6,133,906
-------------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
PENNSYLVANIA--1.1%
Pittsburgh Series B Pension General Obligation
Taxable 6.35%, 3/1/13.............................. Aaa $ 2,000 $ 2,100,000
-------------
TEXAS--0.8%
Texas State University System Revenue 6.16%,
3/15/06............................................ Aaa 1,495 1,534,244
-------------
VIRGINIA--0.4%
Newport News Series B Taxable 7.05%, 1/15/25......... Aa 750 774,375
-------------
WASHINGTON--0.8%
Snohomish County Washington School District 5.65%,
12/1/09............................................ Aaa 1,400 1,547,000
-------------
TOTAL MUNICIPAL BONDS
(Identified cost $21,832,860)................................................ 22,378,512
-------------
ASSET-BACKED SECURITIES--5.0%
Continental Airlines, Series 97-2D 7.522%, 6/30/01... Ba 2,004 2,001,291
Green Tree Financial Corp. 94-1, B2 7.85%, 4/15/19... Baa(c) 3,000 2,895,000
Green Tree Financial Corp. 97-4, M1 7.22%, 2/15/29... Aa 2,500 2,514,062
Team Fleet Financing Corp. 96-1, B 144A 7.10%,
12/15/02 (b)....................................... BBB(c) 1,975 1,955,250
-------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $9,579,253)................................................. 9,365,603
-------------
CORPORATE BONDS--18.4%
AIRLINES--1.0%
U.S. Airways 6.85%, 01/30/18......................... A 1,860 1,861,581
-------------
AUTO PARTS & EQUIPMENT--1.3%
Titan Tire Corp. 7%, 2/11/00......................... NR 2,500 2,475,000
-------------
BROADCASTING (TELEVISION, RADIO & CABLE)--1.0%
Poland Communications, Inc. Series B 9.875%,
11/1/03............................................ B 2,200 1,944,250
-------------
COMPUTERS (SOFTWARE & SERVICES)--0.3%
PSINet, Inc. 144A 11.50%, 11/1/08 (b)................ B 600 624,000
-------------
ENTERTAINMENT--0.8%
SFX Entertainment, Inc. 144A 9.125%, 12/1/08 (b)..... B 1,500 1,496,250
-------------
FINANCIAL (DIVERSIFIED)--1.3%
BNP U.S. Funding LLC Series A 144A, 7.738%, 12/31/49
(b)(d)............................................. A 2,500 2,412,435
-------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES--3.9%
Majestic Star Casino LLC Series B 12.75%, 5/15/03.... B 1,500 1,567,500
Mashantucket Pequot 144A 6.57%, 9/1/13 (b)........... Aaa 2,140 2,153,375
Mashantucket Pequot 144A 6.91%, 9/1/12 (b)........... Aaa 1,100 1,138,500
Station Casinos, Inc. 10.125%, 3/15/06............... B 2,250 2,356,875
-------------
7,216,250
-------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--0.9%
Schein Pharmaceutical, Inc. 8.762%, 12/15/04 (d)..... B 2,055 1,767,300
-------------
MANUFACTURING (SPECIALIZED)--0.6%
Collins & Aikman Products 11.50%, 4/15/06............ B 1,000 1,042,500
-------------
OIL & GAS (EXPLORATION & PRODUCTION)--3.1%
Benton Oil & Gas Co. 9.375%, 11/1/07................. B 1,500 930,000
Benton Oil & Gas Co. 144A 11.625%, 5/1/03 (b)........ B 1,000 660,000
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
OIL & GAS (EXPLORATION & PRODUCTION)--CONTINUED
Forcenergy, Inc. Series B 8.50%, 2/15/07............. B $ 4,325 $ 2,595,000
Lomak Petroleum, Inc. 8.75%, 1/15/07................. B 1,750 1,627,500
-------------
5,812,500
-------------
PERSONAL CARE--0.9%
Bally Total Fitness Holding Corp. Series B 9.875%,
10/15/07........................................... B 1,750 1,715,000
-------------
SERVICES (COMMERCIAL & CONSUMER)--0.6%
ARA Services, Inc. 10.625%, 8/1/00................... Baa 54 56,970
Fisher Scientific International, Inc. 144A 9%, 2/1/08
(b)................................................ B 1,000 1,000,000
-------------
1,056,970
-------------
TELECOMMUNICATIONS (LONG DISTANCE)--0.6%
RCN Corp. Series B 0%, 2/15/08 (d)................... B 2,000 1,080,000
-------------
TELEPHONE--1.7%
ICG Holdings, Inc. 0%, 9/15/05 (d)................... NR 900 747,000
Interamericas Co. 144A 14%, 10/27/07 (b)............. NR 1,830 960,750
Intermedia Communications, Inc. Series B 0%, 7/15/07
(d)................................................ B 1,100 770,000
Pathnet, Inc. 12.25%, 4/15/08........................ NR 1,000 700,000
-------------
3,177,750
-------------
TRUCKERS & MARINE--0.4%
Hvide Marine, Inc. 8.375%, 2/15/08................... B 1,000 811,250
-------------
TOTAL CORPORATE BONDS
(Identified cost $38,992,188)................................................ 34,493,036
-------------
NON-AGENCY MORTGAGE-BACKED SECURITIES--24.4%
BTC Mortgage Investors Trust 97-S1, D 144A 6.95%,
12/31/09 (b)....................................... BBB(c) 1,750 1,750,000
CS First Boston Corp. 97-SPCE, D 144A 7.332%, 4/20/08
(b)................................................ BBB(c) 1,800 1,763,437
CS First Boston Mortgage Securities 97-1R, 1M4 144A
7.312%, 2/28/22 (b)................................ Baa 2,697 2,496,175
ContiMortgage Home Equity Loan Trust 98-1, B 7.86%,
4/15/29............................................ Baa 4,000 3,937,500
DLJ Mortgage Acceptance Corp. 97-CF2, B1 144A 7.14%,
11/15/08 (b)....................................... Baa 2,200 2,042,562
First Chicago/Lennar Trust 97-CHL1, D 144A 8.11%,
5/29/08 (b)........................................ BB(c) 2,000 1,715,625
First Union Lehman Brothers Bank of America 98-C2, D
6.778%, 3/18/13.................................... Baa 3,000 2,834,063
GE Capital Mortgage Securities, Inc. 98-26, M 6.25%,
2/25/14............................................ AAA(c) 1,217 1,197,153
GE Capital Mortgage Services, Inc. 96-8, 2A5 7.50%,
5/25/26............................................ AAA(c) 972 981,486
General Growth Properties 97-1, D2 144A 6.992%,
11/15/07 (b)....................................... Baa 2,000 1,935,625
IMC Home Equity Loan Trust 98-1, B 7.87% 6/20/29..... Baa 2,000 1,930,938
IMPAC CMB Trust 98-2, M3 7.25%, 4/25/28.............. A(c) 957 959,139
LB Commercial Conduit Mortgage Trust 98-C4, A1B
6.21%, 10/15/08.................................... Aaa 2,250 2,294,297
Merrill Lynch Mortgage Investors, Inc. 96-C2, A3
6.96%, 11/21/28.................................... A(c) 3,607 3,715,210
Morgan Stanley Capital I 98-WF2, C 6.77%, 6/15/08.... A(c) 1,700 1,734,000
Residential Asset Securitization Trust 96-A4, A13
7.50%, 9/25/26..................................... AAA(c) 1,000 1,014,375
Residential Asset Securitization Trust 96-A8, A1 8%,
12/25/26........................................... AAA(c) 273 273,052
Residential Funding Mortgage Securities I 94-57, M3
6.50%, 3/25/24..................................... BBB(c) 4,012 3,799,398
Ryland Mortgage Securities Corp. III 92-A, 1A 8.258%,
3/29/30............................................ A-(c) 750 748,887
</TABLE>
See Notes to Financial Statements
14
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
Securitized Asset Sales, Inc. 95-6, B3 144A 7%,
12/25/10 (b)....................................... NR $ 1,266 $ 1,180,091
Securitized Asset Sales, Inc. 95-A, M 7.53%,
3/25/24............................................ Aa 1,771 1,782,754
Structured Asset Securities Corp. 95-C1, D 7.375%,
9/25/24............................................ BBB(c) 2,000 2,008,750
Structured Asset Securities Corp. 93-C1, B 6.60%,
10/25/24........................................... A+(c) 2,250 2,257,031
Wilshire Funding Corp. 97-WFC1, M3 7.25%, 8/25/27.... Baa 1,541 1,404,422
-------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $46,266,182)................................................ 45,755,970
-------------
FOREIGN GOVERNMENT SECURITIES--18.3%
ARGENTINA--3.4%
Republic of Argentina 11%, 12/4/05................... Ba 3,050 3,042,375
Republic of Argentina BGL5 11.375%, 1/30/17.......... Ba 1,500 1,503,750
Republic of Argentina RegS 11.75%, 2/12/07........... Ba 2,250 1,915,312
-------------
6,461,437
-------------
BRAZIL--1.6%
Republic of Brazil C Bond, PIK interest
capitalization, 8%, 4/15/14 (d).................... B 2,555 1,539,629
Republic of Brazil NMB-L Bearer 6.188%, 4/15/09
(d)................................................ B 2,500 1,382,812
-------------
2,922,441
-------------
BULGARIA--1.8%
Republic of Bulgaria FLIRB Series A Bearer 2.50%,
7/28/12 (d)........................................ B 4,430 2,547,250
Republic of Bulgaria IAB Series PDI Euro 6.688%,
7/28/11 (d)........................................ B 1,250 845,313
-------------
3,392,563
-------------
COLOMBIA--1.8%
Republic of Colombia 7.625%, 2/15/07................. Baa 1,500 1,248,750
Republic of Colombia Global Bond 8.375%, 2/15/27..... Baa 2,750 2,048,750
-------------
3,297,500
-------------
CROATIA--1.6%
Croatia Series A 6.563%, 7/31/10 (d)................. Baa 2,000 1,600,000
Croatia Series B 6.563%, 7/31/06 (d)................. Baa 1,810 1,465,744
-------------
3,065,744
-------------
DOMINICAN REPUBLIC--0.2%
Dominican Republic PDI Bearer 6.625%, 8/30/09 (d).... B(c) 485 339,500
-------------
MEXICO--3.0%
United Mexican States Global Bond 11.50%, 5/15/26.... Ba 5,350 5,700,425
-------------
PANAMA--1.1%
Republic of Panama 8.875%, 9/30/27................... Ba 2,215 2,093,175
-------------
PERU--1.0%
Peru PDI 4%, 3/7/17 (d).............................. BB(c) 2,950 1,865,875
-------------
POLAND--1.9%
Poland PDI Bearer 5%, 10/27/14 (d)................... Baa 3,750 3,513,281
-------------
SOUTH AFRICA--0.9%
Republic of South Africa 8.50%, 6/23/17.............. Baa 2,080 1,600,768
-------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $34,928,431)................................................
34,252,709
-------------
<CAPTION>
MOODY'S
BOND PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
FOREIGN CORPORATE BONDS--15.8%
ARGENTINA--3.3%
Compania de Radiocomunicaciones Moviles SA 144A
9.25%, 5/8/08 (b).................................. Ba $ 3,200 $ 2,960,000
Mastellone Hermanos S.A. 11.75%, 04/01/08............ B 1,000 807,500
Telefonica de Argentina 144A 9.125%, 5/7/08 (b)...... Ba 2,500 2,312,500
-------------
6,080,000
-------------
BRAZIL--1.4%
Globo Communicacoes Co. 144A 10.625%, 12/5/08 (b).... B 3,500 2,292,500
MRS Logistica SA RegS Series B 10.625%, 8/15/05...... B(c) 750 388,125
-------------
2,680,625
-------------
CAYMAN ISLANDS--1.1%
Centaur Funding Corp. 144A, 9.08%, 4/21/20 (b)....... Baa 2,000 2,075,000
-------------
CHILE--1.7%
Compania Sud Americana de Vapores SA 7.375%,
12/8/03............................................ BBB(c) 2,000 1,810,000
Empresa Nacional de Electricidad SA 7.75%, 7/15/08... Baa 1,500 1,416,300
-------------
3,226,300
-------------
CHINA--0.5%
AES China Generating Co. Yankee 10.125%, 12/15/06.... Ba 1,235 852,150
-------------
GREECE--0.9%
Fage Dairy Industries SA 9%, 2/1/07.................. B 2,000 1,710,000
-------------
INDONESIA--0.3%
APP Finance II Mauritius, Ltd. 12%, 12/29/49 (d)..... Caa 1,090 624,025
-------------
JAPAN--1.9%
IBJ Preferred Capital Co. LLC 144A 8.79%, 12/29/49
(b)(d)............................................. Baa 330 284,314
SB Treasury Co. LLC 144A 9.40%, 12/29/49 (b)(d)...... Baa 3,500 3,331,073
-------------
3,615,387
-------------
NETHERLANDS--2.4%
PTC International Finance BV 0%, 7/1/07 (d).......... NR 6,500 4,420,000
-------------
POLAND--0.9%
TPSA Finance 144A 7.75%, 12/10/08 (b)................ Baa 1,625 1,602,656
-------------
VENEZUELA--1.4%
PDVSA Finance Ltd. 144A 7.50%, 11/15/28 (b).......... A 3,250 2,591,875
-------------
TOTAL FOREIGN CORPORATE BONDS
(Identified cost $31,983,669)................................................
29,478,018
-------------
FOREIGN CONVERTIBLE BONDS--0.7%
CANADA--0.1%
PLD Telekom Cv. 144A 9%, 6/1/06 (b).................. NR 600 222,750
-------------
RUSSIA--0.6%
Lukinter Finance Cv. 3.50%, 5/6/02................... CC(c) 3,200 1,168,000
-------------
TOTAL FOREIGN CONVERTIBLE BONDS
(Identified cost $4,705,775).................................................
1,390,750
-------------
</TABLE>
See Notes to Financial Statements
15
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
PREFERRED STOCKS--0.5%
PAPER & FOREST PRODUCTS--0.5%
SD Warren Co. Series B Pfd. PIK 14%.......................
30,000 $ 987,010
------------
TOTAL PREFERRED STOCKS
(Identified cost $607,500).........................................
987,010
------------
WARRANTS--0.1%
COMPUTERS (NETWORKING)--0.0%
Orion Network Systems, Inc. Warrants (e)..................
1,000 6,000
------------
FOREIGN GOVERNMENT--0.0%
Republic of Argentina Warrants (e)........................
3,050 14,640
------------
TELEPHONE--0.1%
FirstCom, Corp. 144A Warrants (b)(e)......................
64,050 80,063
Pathnet, Inc.144A Warrants (b)(e).........................
1,000 10,000
------------
90,063
------------
TOTAL WARRANTS
(Identified cost $0)...............................................
110,703
------------
TOTAL LONG-TERM INVESTMENTS--97.9%
(Identified cost $194,014,863).....................................
183,396,939
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- -------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--1.2%
COMMERCIAL PAPER--1.2%
Receivables Capital Corp. 5.15%, 1/4/99.............. A-1 $ 2,195 $ 2,194,058
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $2,194,058).................................................
2,194,058
-------------
TOTAL INVESTMENTS--99.1%
(Identified cost $196,208,921)...............................................
185,590,997(a)
Cash and receivables, less liabilities--0.9%.................................
1,772,413
-------------
NET ASSETS--100.0%.............................................................
$ 187,363,410
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $4,447,049 and gross
depreciation of $16,717,148 for federal income tax purposes. At December
31, 1998, the aggregate cost of securities for federal income tax purposes
was $197,861,096.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally qualified institutional buyers. At December 31,
1998, these securities amounted to a value of $43,046,806 or 23% of net
assets.
(c) As rated by Standard & Poor's, Fitch or Duff & Phelps.
(d) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(e) Non-income producing.
(f) Security in default.
See Notes to Financial Statements
16
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$196,208,921)............................................. $ 185,590,997
Cash........................................................ 1,915,361
Receivables
Interest and dividends.................................... 3,953,211
Investment securities sold................................ 1,022,849
Fund shares sold.......................................... 95,283
Prepaid expenses............................................ 3,801
-------------
Total assets............................................ 192,581,502
-------------
LIABILITIES
Payables
Investment securities purchased........................... 4,887,703
Fund shares repurchased................................... 140,937
Investment advisory fee................................... 80,643
Financial agent fee....................................... 15,562
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 88,187
-------------
Total liabilities....................................... 5,218,092
-------------
NET ASSETS.................................................. $ 187,363,410
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 205,143,488
Undistributed net investment income....................... 896,193
Accumulated net realized loss............................. (8,058,347)
Net unrealized depreciation............................... (10,617,924)
-------------
NET ASSETS.................................................. $ 187,363,410
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 20,401,284
-------------
-------------
Net asset value and offering price per share................ $ 9.18
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 16,242,598
Dividends................................................. 167,510
------------
Total investment income................................. 16,410,108
------------
EXPENSES
Investment advisory fee................................... 993,926
Financial agent fee....................................... 162,234
Custodian................................................. 39,526
Professional.............................................. 25,102
Printing.................................................. 24,431
Trustees.................................................. 12,789
Miscellaneous............................................. 23,460
------------
Total expenses.......................................... 1,281,468
------------
NET INVESTMENT INCOME....................................... 15,128,640
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (8,037,422)
Net change in unrealized appreciation (depreciation) on
investments............................................. (15,423,527)
------------
NET LOSS ON INVESTMENTS..................................... (23,460,949)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (8,332,309)
------------
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE>
MULTI-SECTOR FIXED INCOME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 15,128,640 $ 11,667,589
Net realized gain (loss).................................. (8,037,422) 4,695,405
Net change in unrealized appreciation (depreciation)...... (15,423,527) 390,571
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. (8,332,309) 16,753,565
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (14,753,888) (11,945,923)
Net realized gains........................................ (1,233,525) (4,694,394)
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (15,987,413) (16,640,317)
-------------- --------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (8,615,846 and 8,085,010
shares, respectively)................................... 85,699,046 84,607,552
Net asset value of shares issued from reinvestment of
distributions (1,648,116 and 1,609,511 shares,
respectively)........................................... 15,987,413 16,640,317
Cost of shares repurchased (8,318,291 and 5,265,201
shares, respectively)................................... (81,629,911) (54,778,943)
-------------- --------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 20,056,548 46,468,926
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS..................... (4,263,174) 46,582,174
NET ASSETS
Beginning of period....................................... 191,626,584 145,044,410
-------------- --------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $896,193 AND $336,142, RESPECTIVELY).......... $ 187,363,410 $ 191,626,584
-------------- --------------
-------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 10.38 $ 10.34 $ 10.22 $ 8.98 $ 10.27
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.77 0.75(1) 0.79(1) 0.83(1)(2) 0.72(1)(2)
Net realized and unrealized gain
(loss).......................... (1.17) 0.34 0.43 1.22 (1.28)
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS.................... (0.40) 1.09 1.22 2.05 (0.56)
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.74) (0.77) (0.78) (0.81) (0.73)
Dividends from net realized
gains........................... (0.06) (0.28) (0.32) -- --
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............. (0.80) (1.05) (1.10) (0.81) (0.73)
----------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE........... (1.20) 0.04 0.12 1.24 (1.29)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 9.18 $ 10.38 $ 10.34 $ 10.22 $ 8.98
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return........................ (4.02)% 10.93% 12.42% 23.54% (5.47)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $187,363 $191,627 $145,044 $109,046 $74,686
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.64% 0.65% 0.65% 0.65%(3) 0.66%
Net investment income............. 7.61% 7.25% 7.80% 8.55% 7.62%
Portfolio turnover rate............. 160% 151% 191% 147% 181%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of
$0.001, $0.002, $0.007, and $0.006 per share, respectively.
(2) Computed using average shares outstanding
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees: if expense offsets were included, the
ratio would not significantly differ.
See Notes to Financial Statements
18
<PAGE>
STRATEGIC ALLOCATION SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term appreciation through
investments in common stocks and fixed-income securities, including foreign and
high-yield debt issues. Investors should note that foreign investing involves
special risks, such as currency fluctuations, less public disclosure, and
economic and political risks, and high-yield fixed income securities generally
are subject to greater market fluctuations and risk of loss of income and
principal than are investments in lower-yielding fixed income securities.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 20.79% compared
with a return of 19.67% for a composite benchmark index comprised of 55% of the
return for the S&P 500 Index(1), 35% of the return for the Lehman Aggregate Bond
Index(2) and 10% of the return of the 90-day T-bill.(3) The S&P 500 Index
returned 28.76% for the same period. All performance figures assume reinvestment
of distributions and are net of sales charges.
The 1998 calendar year proved to be one of the more difficult investment
years in recent memory given the extreme volatility in the global equity and
fixed income markets. In fact, U.S. equities by many measures had not seen this
level of volatility since the 1987 market crash. Not since 1990 were bond
investors punished so severely for owning anything other than U.S. Government
securities.
While 1998 turned out to be an excellent year for large-cap stocks,
small-capitalization stocks continued to underperform and profitability at many
cyclical companies came under pressure due to weakness in the international
markets and falling commodity prices. Recognizing these trends, we focused our
stock selection on large-capitalization companies with predictable revenue
streams and a domestic focus. The Fund's heavy bias towards large-cap names and
its overweighting in the health-care, consumer staples and technology sectors
were the primary drivers for our strong equity performance last year.
Despite the obvious temptation to raise cash during this summer's sell-off,
our decision to remain fully invested in stocks also paid off handsomely as the
market has rebounded dramatically from its early October lows. On the other side
of the equation, the most notable factor that held back performance over this
latest reporting period was the Fund's underweighted position in the strongly
performing consumer cyclical group during the final quarter. While we were not
expecting a recession anytime soon, we were somewhat surprised by the strength
of the U.S consumer over this latest quarter.
With respect to the fixed-income portion of the Fund, the interest rate
roller coaster ride of 1997 (with rates starting out at 6.64%, peaking at 7.15%,
and ending at 5.92%) turned into a "yield ride" in 1998, as many fixed-income
investors began the year reaching for yield in both domestic high-yield
securities and lower quality foreign bonds. Despite the favorable backdrop of a
moderate, stable U.S. economy and historically low rates, this strategy began to
lose favor as global uncertainty caused investor sentiment to shift in the
second half of the year toward a preference for the safety and liquidity of U.S.
Treasuries. With the benefit of three swift rate cuts by the Federal Reserve
Board, the markets began to calm in the fourth quarter, and the 30-year U.S.
Treasury bond closed out the year at 5.09%. While the most recent CPI figures
indicate that U.S. inflation remains benign at a modest 1.6% annualized rate--a
slight slowdown from 1997's 1.7% rate--the mood in the bond market remains
tenuous.
While we are not pleased with our results, they can be explained by a
"flight to quality" of unprecedented magnitude. As stated earlier, the US
Treasury sector was the best performing sector in 1998. While market
environments such as this happen relatively infrequently, they penalize managers
such as ourselves that have a significant underweighting to U.S. Treasuries. It
is noteworthy that since 1980 there was only one occurrence where U.S.
Treasuries were the best performing bond market sector two years in a row.
During this difficult time, we remained true to our discipline and remained
fully allocated to those non-core sectors we believed were the most attractive
from a risk-reward perspective. We believe that this is the most prudent manner
in which to manage assets particularly during extreme market moves.
OUTLOOK
As we enter 1999, the stock market and U.S. economy continue to be strong.
Despite some weakness in exports and the manufacturing sector, robust consumer
spending has made the U.S. economy the strongest in the industrialized world.
Recent data on employment, personal income, consumer spending, and consumer
confidence are all encouraging. Yet, there is a fundamental disconnect between
the economy and corporate profits. Profits for 1998 were about flat with 1997,
and we expect only slight improvement this year. This tough earnings environment
over the past year benefited steady growth groups, such as health-care and
communication services. We don't see this changing for the foreseeable future.
Actually, we see the torrid pace of economic growth slowing somewhat in 1999.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
(2) The Lehman Aggregate Bond Index is an unmanaged, commonly used measure of
bond market total return performance. The Index is not available for direct
investment.
(3) The 90-day T-bill is a commonly used measure of money market total return
performance.
19
<PAGE>
STRATEGIC ALLOCATION SERIES
Overall, we remain cautiously optimistic on the market. While we expect
corporate profits to remain under pressure, this current environment of benign
inflation and historically low interest rates should continue to be a positive
catalyst for financial assets. After four straight years of double-digit gains,
it is also likely that we will see more normalized (single-digit) returns for
U.S. equities in 1999. Lastly, we believe that the financial markets will remain
volatile over the near term, as there are still many crosscurrents at work in
the global financial systems.
Although we anticipate a slowdown in the U.S. economy, we do not expect the
recession that seems to be factored into the domestic high-yield market
currently. We do expect that this sector's defaults will pick up in 1999;
however, the level being priced into the market is extremely high. Our holdings
in this area represent a diversified group of securities in industries with good
fundamentals, and solid underlying businesses. In addition, we have significant
exposure to U.S. dollar-denominated below investment-grade foreign holdings.
This sector remains among the most attractive from a risk-reward perspective. We
own debt securities of countries that have good fundamentals and more stable
political situations, such as Mexico, Argentina, Panama, Bulgaria, and Peru.
We believe the fixed-income portion of the Fund is well structured to take
advantage of current market conditions, and we will continue to emphasize the
credit-sensitive sectors given their very favorable valuations. The market is
paying investors a large yield premium or yield advantage as compensation for
taking risk. Priced into this premium is much bad news. For those investors
willing and able to be patient and discerning, we believe these factors present
outstanding opportunities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LIPPER ANALYTICAL SERVICES FLEXIBLE PORTFOLIO INDEX**
STRATEGIC ALLOCATION SERIES BALANCED BENCHMARK *
<S> <C> <C> <C>
12/31/1988 $10,000.00 $10,000.00 $10,000.00
12/31/1989 $11,977.55 $12,312.04 $11,725.08
12/31/1990 $12,666.26 $12,595.30 $11,834.86
12/31/1991 $16,369.75 $15,488.25 $15,027.78
12/31/1992 $18,116.24 $16,608.63 $15,880.20
12/31/1993 $20,113.57 $18,144.34 $17,903.98
12/31/1994 $19,822.66 $18,179.16 $17,426.38
12/31/1995 $23,434.68 $23,129.04 $21,537.75
12/31/1996 $25,554.68 $26,444.46 $24,564.00
12/31/1997 $30,851.56 $32,249.49 $29,177.75
12/31/1998 $37,266.79 $38,592.09 $34,006.77
<CAPTION>
S & P 500 INDEX ***
<S> <C>
12/31/1988 $10,000.00
12/31/1989 $13,143.49
12/31/1990 $12,723.63
12/31/1991 $16,609.89
12/31/1992 $17,887.30
12/31/1993 $19,676.05
12/31/1994 $19,936.37
12/31/1995 $27,413.96
12/31/1996 $33,787.07
12/31/1997 $45,063.71
12/31/1998 $58,022.45
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/98
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- - ---------------------------------------------------------------------
Strategic Allocation Series 20.79% 13.13% 14.06%
- - ---------------------------------------------------------------------
Balanced Benchmark* 19.67% 16.29% 14.46%
- - ---------------------------------------------------------------------
Lipper Analytical Services Flexible
Portfolio Index** 16.55% 13.69% 13.02%
- - ---------------------------------------------------------------------
S&P 500 Index*** 28.76% 24.15% 19.22%
- - ---------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 12/31/88.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares when redeemed, may be
worth more or less than the original cost. High yield fixed income securities
generally are subject to greater market fluctuations and risk of loss of income
and principal than are investments in lower-yielding fixed income securities.
Foreign investing involves special risks such as currency fluctuation and less
public disclosure, as well as economic and political risks.
* The Balanced Benchmark is calculated based upon the performance of the
following indices: 55% S&P 500/35% Lehman Brothers Aggregate Bond Index/10%
90-day Treasury Bills and is produced by Frank Russell Company.
** The Lipper Analytical Services Flexible Portfolio Index is an average of the
largest mutual funds within the flexible portfolio category.
*** The S&P 500 Stock Index is an unmanaged, commonly used measure of stock
total return performance. The index is not available for direct investment.
20
<PAGE>
STRATEGIC ALLOCATION SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------- ------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--12.5%
U.S. TREASURY BONDS--0.5%
U.S. Treasury Bonds 6.125%, 11/15/27............ AAA $ 2,300 $ 2,569,923
------------
U.S. TREASURY NOTES--12.0%
U.S. Treasury Notes 5.625%, 10/31/99............ AAA 800 806,149
U.S. Treasury Notes 5.50%, 2/29/00.............. AAA 15,000 15,143,763
U.S. Treasury Notes 4.50%, 9/30/00.............. AAA 2,025 2,021,528
U.S. Treasury Notes 5.75%, 11/15/00............. AAA 4,950 5,048,388
U.S. Treasury Notes 5.75%, 11/30/02............. AAA 1,630 1,690,903
U.S. Treasury Notes 5.50%, 1/31/03.............. AAA 11,960 12,307,426
U.S. Treasury Notes 5.50%, 2/28/03.............. AAA 7,000 7,206,790
U.S. Treasury Notes 5.75%, 4/30/03.............. AAA 3,725 3,875,178
U.S. Treasury Notes 5.50%, 2/15/08.............. AAA 2,550 2,701,957
U.S. Treasury Notes 5.625%, 5/15/08............. AAA 3,359 3,584,569
U.S. Treasury Notes 5.25%, 8/15/03.............. AAA 3,053 3,130,024
------------
57,516,675
------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $58,880,939).......................................... 60,086,598
------------
MUNICIPAL BONDS--3.2%
CALIFORNIA--1.5%
California State Department Water Resources
Revenue Series S 5%, 12/1/29.................. AA 415 410,331
Kern County Pension Obligation Revenue Taxable
7.26%, 8/15/14................................ AAA 1,500 1,657,500
Long Beach Pension Obligation Taxable 6.87%,
9/1/06........................................ AAA 840 901,950
Los Angeles County Public Works PJ V-B 5.125%,
12/1/29....................................... AAA 630 633,937
San Bernardino County Pension Obligation Revenue
Taxable 6.87%, 8/1/08......................... AAA 410 441,262
San Bernardino County Pension Obligation Revenue
Taxable 6.94%, 8/1/09......................... AAA 1,110 1,202,963
Sonoma County Pension Obligation 6.625%,
6/1/13........................................ AAA 925 967,781
Ventura County Pension Obligation Taxable 6.54%,
11/1/05....................................... AAA 975 1,024,969
------------
7,240,693
------------
FLORIDA--1.0%
Florida State Department of Transportation
Series A 5%, 7/1/27........................... AA+ 500 496,875
Miami Beach Special Obligation Revenue Taxable
8.60%, 9/1/21................................. AAA 3,210 3,667,425
University of Miami Revenue Taxable Series A
7.65%, 4/1/20................................. AAA 540 578,475
------------
4,742,775
------------
MASSACHUSETTS--0.2%
Massachusetts State Port Authority Revenue
Taxable Series C 6.05%, 7/1/02................ AA- 835 851,700
Massachusetts State Water Resources Authority
Revenue Series D 5%, 8/1/24................... AAA 500 493,750
------------
1,345,450
------------
NEW YORK--0.3%
New York State Dormitory Authority Pension
Obligation Revenue Taxable 6.90%,4/1/03....... BBB+ 725 755,813
New York State Environmental Facilities Corp.
Revenue Taxable 6.70%, 3/15/08................ AAA 670 711,875
------------
1,467,688
------------
TEXAS--0.2%
Houston Water & Sewer System Revenue Refunding,
Jr. Lien, Series D 5%, 12/1/25................ AAA 630 617,400
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------- ------------
<S> <C> <C> <C>
TEXAS--CONTINUED
Texas State General Obligation Series B 5.25%,
10/1/08....................................... AA $ 255 $ 276,038
------------
893,438
------------
TOTAL MUNICIPAL BONDS
(Identified cost $14,965,478).......................................... 15,690,044
------------
ASSET-BACKED SECURITIES--1.2%
AESOP Funding II LLC 97-1, A2 144A 6.40%,
10/20/03 (d).................................. AAA 2,000 2,045,000
Capita Equipment Receivables Trust 97-1, B
6.45%, 8/15/02................................ A+ 720 727,200
Copelco Capital Funding Corp., 98-A, A3 5.78%,
2/15/01....................................... AAA 1,250 1,251,563
Fleetwood Credit Corp. Grantor Trust 96-B, A
6.90%, 3/15/12................................ AAA 514 521,205
Green Tree Financial Corp. 96-2, M1 7.60%,
4/15/27....................................... AA- 1,075 1,115,648
------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $5,559,752)........................................... 5,660,616
------------
CORPORATE BONDS--0.9%
COMPUTERS (SOFTWARE & SERVICES)--0.1%
Computer Associates International Series B
6.375%, 4/15/05............................... A- 635 625,475
------------
HEALTH CARE (DIVERSIFIED)--0.2%
Tenet Healthcare Corp 144A 8.125%, 12/1/08
(d)........................................... BB- 1,200 1,243,500
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.2%
Boston Scientific Corp. 6.625%, 3/15/05......... BBB 900 849,375
------------
MANUFACTURING (DIVERSIFIED)--0.1%
Tyco International Group SA 6.375%, 6/15/05..... A- 500 508,125
------------
PAPER & FOREST PRODUCTS--0.1%
Buckeye Cellulose Corp. 9.25%, 9/15/08.......... BB- 350 363,562
------------
RETAIL (FOOD CHAINS)--0.1%
Meyer (Fred), Inc. 7.45%, 3/1/08................ BB+ 650 703,625
------------
TRUCKS & PARTS--0.1%
Cummins Engine Inc. 6.45%, 3/1/05............... BBB+ 320 312,400
------------
TOTAL CORPORATE BONDS
(Identified cost $4,540,977)........................................... 4,606,062
------------
NON-AGENCY MORTGAGE-BACKED SECURITIES--3.1%
CS First Boston Mortgage Securities Corp.
95-AEW1, B 7.182%, 11/25/27................... AA- 1,346 1,343,903
First Union-Lehman Brothers 97-C1, B 7.43%,
4/18/07....................................... Aa(c) 850 918,797
G.E. Capital Mortgage Services, Inc. 96-8, 1M
7.25%, 5/25/26................................ AA 243 246,078
Lehman Large Loan 97-LLI, B 6.95%, 3/12/07...... AA 645 678,862
Mortgage Capital Funding, Inc. 96-MC2, A3,
7.008%, 9/20/06............................... Aaa(c) 1,800 1,892,812
Nationslink Funding Corp. 96-1, B 7.69%,
12/20/05...................................... AA 450 479,672
Norwest Asset Securities Corp. 96-9, A15 7.75%
1/25/27....................................... Aaa(c) 900 913,500
Residential Asset Securitization Trust 96-A8, A1
8%, 12/25/26.................................. AAA 136 136,526
Residential Funding Mortgage Securities I 96-S1,
A11 7.10%, 1/25/26............................ AAA 1,500 1,509,375
Residential Funding Mortgage Securities I 96-S4,
M1 7.25%, 2/25/26............................. AA 969 974,034
Securitized Asset Sales 93-J, 2B 6.81%,
11/28/23...................................... AA(c) 949 948,830
</TABLE>
See Notes to Financial Statements
21
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------- ------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
Structured Asset Securities Corp. 93-C1, 6.60%,
10/25/24...................................... A+ $ 1,150 $ 1,153,689
Structured Asset Securities Corp. 95-C4, B
7.00%, 6/25/26................................ AA 1,650 1,665,469
Triangle Funding Ltd. 98-2A, 3, 144A 7.163%,
10/15/04 (d).................................. BBB 2,000 1,992,500
------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $14,591,989).......................................... 14,854,047
------------
FOREIGN GOVERNMENT SECURITIES--1.9%
ARGENTINA--0.3%
Republic of Argentina 9.75%, 9/19/27............ BBB- 490 438,795
Republic of Argentina Bearer FRB 6.188%, 3/31/05
(e)........................................... BBB- 1,025 876,033
------------
1,314,828
------------
BRAZIL--0.1%
Republic of Brazil NMB-L Bearer 6.188%, 4/15/09
(e)........................................... BB- 1,185 655,453
------------
BULGARIA--0.1%
Republic of Bulgaria FLIRB Series A Bearer
2.50%, 7/28/12 (e)............................ B(c) 810 465,750
------------
COLOMBIA--0.2%
Republic of Colombia 7.25%, 2/23/04............. BBB- 1,000 852,500
------------
CROATIA--0.2%
Croatia Series A 6.563%, 7/31/10 (e)............ BBB- 550 440,000
Croatia Series B 6.563%, 7/31/06 (e)............ BBB- 475 384,758
------------
824,758
------------
KOREA--0.2%
Republic of Korea 8.875%, 4/15/08............... BB+ 1,095 1,127,850
------------
MEXICO--0.2%
United Mexican States Global Bond 11.50%,
5/15/26....................................... BB 1,175 1,251,962
------------
PANAMA--0.2%
Republic of Panama 8.875%, 9/30/27.............. BB+ 965 911,925
------------
PERU--0.1%
Peru PDI 4%, 3/7/17 (e)......................... BB 730 461,725
------------
POLAND--0.3%
Poland Bearer PDI 5%, 10/27/14 (e).............. BBB- 1,475 1,381,891
------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $9,809,809)........................................... 9,248,642
------------
FOREIGN CORPORATE BONDS--0.6%
ARGENTINA--0.1%
Compania de Radiocomunicaciones Moviles SA 144A
9.25%, 5/8/08 (d)............................. BBB 450 416,250
------------
CHILE--0.1%
Compania Sud Americana de Vapores SA 7.375%,
12/8/03....................................... BBB 140 126,700
Petropower I Funding Trust 144A, 7.36%, 2/15/14
(d)........................................... BBB 500 421,875
------------
548,575
------------
JAPAN--0.3%
IBJ Preferred Capital Co. LLC 144A 8.79%,
12/29/49 (d).................................. Baa 830 715,094
SB Treasury Co. LLC 144A 9.40%, 12/29/49 (d).... BB+ 830 789,940
------------
1,505,034
------------
POLAND--0.1%
TPSA Finance 144A 7.75%, 12/10/08 (d)........... BBB- 355 350,119
------------
TOTAL FOREIGN CORPORATE BONDS
(Identified cost $3,093,960)........................................... 2,819,978
------------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C> <C>
COMMON STOCKS--72.0%
BANKS (MAJOR REGIONAL)--2.7%
Bank One Corp.................................................... 59,902 $ 3,058,746
Mellon Bank Corp................................................. 38,900 2,674,375
U.S. Bancorp..................................................... 50,000 1,775,000
Wells Fargo & Co................................................. 134,600 5,375,587
------------
12,883,708
------------
BANKS (MONEY CENTER)--0.9%
BankAmerica Corp................................................. 74,774 4,495,787
------------
BEVERAGES (ALCOHOLIC)--0.7%
Anheuser-Busch Companies, Inc.................................... 54,400 3,570,000
------------
BEVERAGES (NON-ALCOHOLIC)--1.2%
PepsiCo, Inc..................................................... 141,000 5,772,187
------------
BROADCASTING (TELEVISION, RADIO & CABLE)--3.6%
CBS Corp......................................................... 53,500 1,752,125
Chancellor Media Corp. (b)....................................... 47,300 2,264,487
Clear Channel Communications, Inc. (b)........................... 33,200 1,809,400
Fox Entertainment Group, Inc. Class A (b)........................ 43,000 1,083,062
Liberty Media Group Class A (b).................................. 90,400 4,164,050
Tele-Communications, Inc. Class A (b)............................ 111,900 6,189,469
------------
17,262,593
------------
COMMUNICATIONS EQUIPMENT--0.6%
Tellabs, Inc. (b)................................................ 40,200 2,756,212
------------
COMPUTERS (HARDWARE)--2.6%
International Business Machines Corp............................. 66,900 12,359,775
------------
COMPUTERS (NETWORKING)--1.2%
Cisco Systems, Inc. (b).......................................... 59,975 5,566,430
------------
COMPUTERS (PERIPHERALS)--1.2%
EMC Corp. (b).................................................... 65,600 5,576,000
------------
COMPUTERS (SOFTWARE & SERVICES)--8.5%
America Online, Inc. (b)......................................... 21,600 3,456,000
BMC Software, Inc. (b)........................................... 119,800 5,338,587
Compuware Corp. (b).............................................. 111,000 8,671,875
Edwards (J.D.) & Co. (b)......................................... 43,700 1,239,987
HBO & Co......................................................... 192,900 5,533,819
Microsoft Corp. (b).............................................. 83,100 11,524,931
Oracle Corp. (b)................................................. 74,000 3,191,250
Sterling Commerce, Inc. (b)...................................... 46,000 2,070,000
------------
41,026,449
------------
CONSUMER FINANCE--0.9%
Capital One Financial Corp....................................... 38,600 4,439,000
------------
DISTRIBUTORS (FOOD & HEALTH)--1.1%
Cardinal Health, Inc............................................. 69,600 5,280,900
------------
ELECTRICAL EQUIPMENT--1.9%
General Electric Co.............................................. 91,900 9,379,544
------------
ELECTRONICS (SEMICONDUCTORS)--3.5%
Intel Corp....................................................... 120,100 14,239,356
Micron Technology, Inc. (b)...................................... 47,400 2,396,662
------------
16,636,018
------------
FINANCIAL (DIVERSIFIED)--3.5%
Citigroup, Inc................................................... 100,050 4,952,475
Freddie Mac...................................................... 120,900 7,790,494
Morgan Stanley Dean Witter & Co.................................. 57,600 4,089,600
------------
16,832,569
------------
HEALTH CARE (DIVERSIFIED)--4.1%
Bristol-Myers Squibb Co.......................................... 70,400 9,420,400
Mylan Laboratories, Inc.......................................... 67,000 2,110,500
Warner-Lambert Co................................................ 110,400 8,300,700
------------
19,831,600
------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--4.8%
Pfizer, Inc...................................................... 88,900 11,151,394
Schering-Plough Corp............................................. 141,600 7,823,400
</TABLE>
See Notes to Financial Statements
22
<PAGE>
STRATEGIC ALLOCATION SERIES
<TABLE>
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C> <C>
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--CONTINUED
Watson Pharmaceuticals, Inc. (b)................................. 64,400 $ 4,049,150
------------
23,023,944
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--2.8%
Baxter International, Inc........................................ 66,200 4,257,487
Becton, Dickinson and Co......................................... 34,500 1,472,719
Genzyme Corp. (b)................................................ 35,200 1,751,200
Medtronic, Inc................................................... 78,300 5,813,775
------------
13,295,181
------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.7%
Clorox Co. (The)................................................. 12,200 1,425,112
Colgate-Palmolive Co............................................. 19,000 1,764,625
Procter & Gamble Co. (The)....................................... 53,500 4,885,219
------------
8,074,956
------------
INSURANCE (LIFE/HEALTH)--0.5%
UNUM Corp........................................................ 40,300 2,352,512
------------
INSURANCE (MULTI-LINE)--1.3%
American International Group, Inc................................ 45,250 4,372,281
ReliaStar Financial Corp......................................... 45,500 2,098,687
------------
6,470,968
------------
LODGING--HOTELS--0.4%
Carnival Corp.................................................... 36,900 1,771,200
------------
MANUFACTURING (DIVERSIFIED)--1.5%
Tyco International Ltd........................................... 98,800 7,453,225
------------
OIL & GAS (DRILLING & EQUIPMENT)--0.4%
Halliburton Co................................................... 22,500 666,562
Schlumberger Ltd................................................. 14,600 673,425
Transocean Offshore, Inc......................................... 22,700 608,644
------------
1,948,631
------------
OIL (DOMESTIC INTEGRATED)--1.3%
USX-Marathon Group............................................... 203,300 6,124,412
------------
OIL (INTERNATIONAL INTEGRATED)--1.5%
Amoco Corp....................................................... 100,000 6,037,500
Conoco, Inc. (b)................................................. 65,700 1,371,488
------------
7,408,988
------------
RETAIL (BUILDING SUPPLIES)--1.4%
Home Depot, Inc. (The)........................................... 108,300 6,626,606
------------
RETAIL (COMPUTERS & ELECTRONICS)--0.3%
Tandy Corp....................................................... 33,300 1,371,544
------------
RETAIL (DRUG STORES)--3.1%
CVS Corp......................................................... 134,000 7,370,000
Rite Aid Corp.................................................... 147,800 7,325,338
------------
14,695,338
------------
RETAIL (FOOD CHAINS)--3.1%
Meyer (Fred), Inc. (b)........................................... 98,750 5,949,688
Safeway, Inc. (b)................................................ 147,600 8,994,375
------------
14,944,063
------------
RETAIL (GENERAL MERCHANDISE)--0.6%
Wal-Mart Stores, Inc............................................. 33,000 2,687,438
------------
<CAPTION>
SHARES VALUE
--------------- ------------
<S> <C> <C> <C>
RETAIL (SPECIALTY)--1.3%
Borders Group, Inc. (b).......................................... 74,000 $ 1,845,375
Staples, Inc. (b)................................................ 103,000 4,499,813
------------
6,345,188
------------
SERVICES (COMMERCIAL & CONSUMER)--0.4%
ServiceMaster Co. (The).......................................... 85,000 1,875,313
------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--2.4%
AirTouch Communications, Inc. (b)................................ 160,400 11,568,850
------------
TELECOMMUNICATIONS (LONG DISTANCE)--2.3%
AT&T Corp........................................................ 67,700 5,094,425
MCI WorldCom, Inc. (b)........................................... 84,838 6,087,127
------------
11,181,552
------------
TELEPHONE--1.5%
BellSouth Corp. (b).............................................. 84,800 4,229,400
SBC Communications, Inc. (b)..................................... 58,100 3,115,613
------------
7,345,013
------------
WASTE MANAGEMENT--1.2%
Waste Management, Inc............................................ 125,100 5,832,788
------------
TOTAL COMMON STOCKS
(Identified cost $269,913,855)..................................................... 346,066,482
------------
FOREIGN COMMON STOCKS--0.6%
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--0.6%
Elan Corp. PLC Sponsored ADR (Ireland) (b)....................... 39,100 2,719,894
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $2,413,495)....................................................... 2,719,894
------------
TOTAL LONG-TERM INVESTMENTS--96.0%
(Identified cost $383,770,254)..................................................... 461,752,363
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000)
----------- ---------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.2%
COMMERCIAL PAPER--2.0%
SBC Communications, Inc. 5.95%, 1/6/99.......... A-1+ $ 3,390 3,387,198
Preferred Receivables Funding Corp. 5.17%,
1/7/99........................................ A-1 1,000 998,602
Corporate Receivables Corp.5.22%, 1/21/99....... A-1+ 1,000 997,265
Vermont American Corp. 5.45%, 1/27/99........... A-1+ 4,105 4,088,842
---------------
9,471,907
---------------
FEDERAL AGENCY SECURITIES--2.2%
FHLB 4.50%, 1/4/99.............................. 5,825 5,822,816
FMC 4.90%, 1/15/99.............................. 4,955 4,945,558
---------------
10,768,374
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $20,240,594).................................................. 20,240,281
---------------
TOTAL INVESTMENTS--100.2%
(Identified cost $404,010,848)................................................. 481,992,644(a)
Cash and receivables, less liabilities--(0.2%)................................. (1,095,967)
---------------
NET ASSET--100.0%................................................................ $ 480,896,677
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $82,815,955 and gross
depreciation of $5,901,655 for income tax purposes. At December 31, 1998,
the aggregate cost of securities for federal income tax purposes was
$405,078,344.
(b) Non-income producing.
(c) As rated by Moody's, Fitch or Duff & Phelps.
(d) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, these securities amounted to a value of $7,974,278 or 1.7% of net
assets.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
See Notes to Financial Statements
23
<PAGE>
STRATEGIC ALLOCATION SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$404,010,848)............................................. $ 481,992,644
Receivables
Investment securities sold................................ 2,396,556
Interest and dividends.................................... 1,875,664
Fund shares sold.......................................... 165,442
Prepaid expenses............................................ 8,563
-------------
Total assets............................................ 486,438,869
-------------
LIABILITIES
Payables
Investment securities purchased........................... 3,921,065
Custodian................................................. 877,094
Fund shares repurchased................................... 367,452
Investment advisory fee................................... 218,702
Financial agent fee....................................... 27,905
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 124,914
-------------
Total liabilities....................................... 5,542,192
-------------
NET ASSETS.................................................. $ 480,896,677
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 398,925,687
Undistributed net investment income....................... 487,041
Accumulated net realized gain............................. 3,502,153
Net unrealized appreciation............................... 77,981,796
-------------
NET ASSETS.................................................. $ 480,896,677
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 30,737,105
-------------
-------------
Net asset value and offering price per share................ $ 15.65
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 9,774,394
Dividends................................................. 2,079,791
-------------
Total investment income................................. 11,854,185
-------------
EXPENSES
Investment advisory fee................................... 2,567,526
Financial agent fee....................................... 290,435
Custodian................................................. 64,938
Professional.............................................. 38,169
Printing.................................................. 28,553
Trustees.................................................. 12,684
Miscellaneous............................................. 29,192
-------------
Total expenses.......................................... 3,031,497
-------------
NET INVESTMENT INCOME....................................... 8,822,688
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 19,330,598
Net change in unrealized appreciation (depreciation) on
investments............................................. 57,110,856
-------------
NET GAIN ON INVESTMENTS..................................... 76,441,454
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 85,264,142
-------------
-------------
</TABLE>
See Notes to Financial Statements
24
<PAGE>
STRATEGIC ALLOCATION SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED
1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 8,822,688 $ 8,442,610
Net realized gain (loss).................................. 19,330,598 63,639,021
Net change in unrealized appreciation (depreciation)...... 57,110,856 3,449,569
------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 85,264,142 75,531,200
------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (8,371,532) (8,832,503)
Net realized gains........................................ (31,140,159) (52,948,379)
------------- -----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (39,511,691) (61,780,882)
------------- -----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (3,651,580 and 3,408,140
shares, respectively)................................... 52,916,356 50,911,029
Net asset value of shares issued from reinvestment of
distributions (2,607,238 and 4,363,884 shares,
respectively)........................................... 39,511,691 61,780,882
Cost of shares repurchased (5,904,172 and 4,807,163
shares, respectively)................................... (86,285,937) (71,683,788)
------------- -----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 6,142,110 41,008,123
------------- -----------------
NET INCREASE IN NET ASSETS................................ 51,894,561 54,758,441
NET ASSETS
Beginning of period....................................... 429,002,116 374,243,675
------------- -----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $487,041 AND $32,496, RESPECTIVELY)........... $480,896,677 $429,002,116
------------- -----------------
------------- -----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 14.12 $ 13.65 $ 13.63 $ 12.68 $ 13.71
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)..... 0.29 0.32 0.32 0.45 0.36(1)(3)
Net realized and unrealized gain
(loss)......................... 2.57 2.46 0.91 1.84 (0.56)
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS................... 2.86 2.78 1.23 2.29 (0.20)
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income......................... (0.28) (0.33) (0.31) (0.45) (0.37)
Dividends from net realized
gains.......................... (1.05) (1.98) (0.90) (0.89) (0.46)
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............ (1.33) (2.31) (1.21) (1.34) (0.83)
----------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE.......... 1.53 0.47 0.02 0.95 (1.03)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD..... $ 15.65 $ 14.12 $ 13.65 $ 13.63 $ 12.68
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return....................... 20.79% 20.73% 9.05% 18.22% (1.45)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)...................... $480,897 $429,002 $374,244 $353,838 $289,083
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses............... 0.68% 0.71% 0.70% 0.67%(2) 0.74%
Net investment income............ 1.97% 2.09% 2.26% 3.28% 2.71%
Portfolio turnover rate............ 139% 368% 287% 170% 220%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
per share.
(2) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
(3) Computed using average shares outstanding.
See Notes to Financial Statements
25
<PAGE>
INTERNATIONAL SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term capital appreciation
by investing primarily in an internationally diversified portfolio of equity
securities. The Fund essentially focuses on quality companies with strong
management, solid growth prospects and attractive relative valuations. Investors
should note that foreign investments pose added risks such as currency
fluctuation, less public disclosure, as well as economic and political risks.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 27.92% compared
with 20.33% for the Morgan Stanley Capital International (MSCI) EAFE Index(1).
All performance figures assume reinvestment of distributions and are net of
sales charges.
For the first half of the year, the portfolio benefited from its overweight
exposure in Europe and its lack of exposure to Asia. The advent of the euro has
given European institutions access to a much greater pool of domestic currency
investments. Also, European markets attracted significant levels of foreign
investment enamored by a region with growing economies. This, coupled with the
need for corporations to restructure in order to be prepared for a more
competitive pan-European market and an emerging trend of improving shareholder
returns, enabled the European equity markets to post particularly strong
returns.
Meanwhile, the currency-led collapse in the Pacific Basin left the region's
markets in tatters with investors nursing heavy losses. Only a determined effort
by the International Monetary Fund and the U.S. to establish credible recovery
plans contained the crisis mostly within the region, allowing a selective market
recovery in the first quarter of 1998. Even this, however, petered out as
investors' relief that the worst was over gave way to the realization that there
was still much deeper economic pain to endure. Even Hong Kong and Singapore saw
their stock markets fall heavily.
The second half of the calendar year was a period of amazing volatility for
global stock markets. After European and U.S. markets had reached their peak in
early July, markets worldwide tumbled on a flood of bad news. The initial
catalyst for the dramatic downturn was the financial crisis in Russia where the
ruble collapsed. Nervousness spread to other markets, particularly Latin America
where it was feared that Brazil was the next in line to devalue. All of the
region's currencies came under intense pressure, interest rates soared, and
equity markets plunged more the 50% in less than two months. Confirmation that
Japan was suffering its worst economic slump since 1945 added to international
market worries. The crash of the Russian ruble and the severe downturn in
worldwide markets also put many hedge funds in severe financial difficulties and
the announcement that U.S. hedge fund manager Long-Term Capital Management LP
had been bailed out to the extent of $3.5 billion sent shockwaves through the
financial community.
All this bad news completely wiped out the year-to-date gains for many
markets, and by early October markets had fallen to a one-year low. However,
concerted worldwide action since that time has resulted in a dramatic recovery
in worldwide markets as stocks rose on expectations that corporate profits would
benefit from lower interest rates. Much of the credit must be given to the U.S.
Federal Reserve, which cut interest rates three times in seven weeks to ensure
that the U.S economy did not slide into recession. We have also seen cuts in
European interest rates, and the Japanese government announced a major package
to stimulate its failing economy. Markets in Southeast Asia also showed signs of
recovery with the perception being that the worst is now over for that region.
The successful completion of an IMF rescue package for Brazil also helped
bolster world markets with a strong rebound for emerging markets that had been
particularly badly affected by the late summer downturn.
In the second half of the year we reduced our large overweighting to
European equities. This area had resulted in substantial outperformance for the
portfolio, but we were concerned that valuations had advanced too quickly in
many instances. We decided that it would be opportune to take profits in Europe
and reinvest the proceeds in Japan where the Fund had previously no holdings.
This strategy has proved successful to date. Although both the European and
Japanese markets have fallen since July, the Japanese yen has strengthened
significantly, resulting in net dollar gains for our Japanese investments.
OUTLOOK
While the manufacturing sector continues under pressure in most countries,
consumer confidence is rebounding once again in a number of economies,
suggesting still relatively buoyant consumer spending. The rally in the UK has
returned it to a level that is above most revised expectations for this year and
only around 10-12% below the more optimistic forecasts for next year. However,
in our opinion, it is the excellent technical position that provides the
strongest support together with the
- - ------------------------
(1) The Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged,
commonly used measure of foreign stock total return performance. The Index
is not available for direct investment.
26
<PAGE>
INTERNATIONAL SERIES
prospect of further monetary easing a certainty in the UK. Economic growth
forecasts meanwhile remain under pressure and will clearly impact further on
earnings expectations. As with the UK, Continental Europe appears less at risk
than the U.S. from a valuation perspective even given the degree to which
perceptions surrounding Europe's economic growth and earnings prospects have
deteriorated since the tremendous rally earlier in the year. We believe
additional rate cuts are on the agenda for early next year and should offset any
concerns over the launch of the euro.
In the Far East, sentiment towards Japan is improving, with fund managers
becoming increasingly nervous of their generally underweight positions in the
stock market and currency. There is growing optimism about the economy and
banking system following the government's recent measures, but possibly this is
due more to the hope that this will prevent imminent free-fall than belief that
the plans solve Japan's structural problems. Further short-term support for the
stock market may emerge from an eventual deal between the LDP and Liberals to
suspend the sales tax. Elsewhere in Asia, currencies have stabilized and
interest rates have fallen. A protracted recovery is likely provided that there
is no worsening of the U.S. and Japanese economies.
The emerging markets outside Asia have also bounced strongly, and a pause
now seems probable. In Latin America, the IMF restructure package has presented
Brazil with the opportunity to resolve structural issues that have held the
country back for some time.
Overall, the scale of recent rallies suggests a period of consolidation is
due. But, we believe liquidity-driven rallies tend to be stronger and continue
longer than most people expect, and it would be no surprise to see markets
squeezed higher over the short term. The U.S. will set the trends for other
equity markets and a soft landing, very low inflation, falling interest rates
and steady earnings growth scenario is a possibility. Add in excess liquidity,
continuing merger and acquisition activity, and valuations could go even higher,
in our opinion.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INTERNATIONAL SERIES MSCI EAFE INDEX *
<S> <C> <C>
05/01/1990 $10,000.00 $10,000.00
12/31/1990 $9,190.11 $9,639.77
12/31/1991 $10,997.45 $10,844.29
12/31/1992 $9,588.82 $9,559.06
12/31/1993 $13,274.32 $12,708.10
12/31/1994 $13,277.86 $13,732.16
12/31/1995 $14,551.69 $15,318.21
12/31/1996 $17,264.92 $16,292.86
12/31/1997 $19,344.17 $16,627.90
12/31/1998 $24,746 $20,907
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/98
FROM
INCEPTION
5/1/90
TO
1 YEAR 5 YEARS 12/31/98
<S> <C> <C> <C>
- - ---------------------------------------------------------------------
International Series 27.92% 13.27% 11.01%
- - ---------------------------------------------------------------------
MSCI EAFE Index* 20.33% 9.50% 8.32%
- - ---------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 5/1/90
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost. Foreign
investing involves special risks such as currency fluctuation and less public
disclosure, as well as economic and political risks.
* The Morgan Stanley Capital International EAFE Index is an unmanaged, commonly
used measure of foreign stock fund performance which includes net dividends
reinvested. Total return figures are net of foreign withholding taxes. The
EAFE index is an aggregate of 19 individual country indexes in Europe,
Australia, New Zealand and the Far East.
27
<PAGE>
INTERNATIONAL SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C> <C>
FOREIGN COMMON STOCKS--95.2%
ARGENTINA--0.4%
Banco Frances SA Sponsored ADR (Banks (Major
Regional)).................................... 20,000 $ 415,000
Telecom Argentina Sponsored ADR (Telephone)..... 20,000 550,000
-------------
965,000
-------------
AUSTRALIA--1.0%
Australian Gas Light Co., Ltd. (Oil
(International Integrated))................... 175,000 1,261,654
QBE Insurance Group Ltd. (Insurance (Property-
Casualty)).................................... 300,000 1,242,057
-------------
2,503,711
-------------
BRAZIL--0.5%
Telecomunicacoes Brasileiras SA Sponsored ADR
(Telephone)................................... 17,900 1,301,106
-------------
DENMARK--0.5%
Tele Danmark A/S (Telecommunications (Cellular/
Wireless)).................................... 9,300 1,255,226
-------------
FINLAND--1.9%
Nokia Oyj Class A (Telecommunications (Cellular/
Wireless)).................................... 23,000 2,816,351
Raisio Group PLC (Foods)........................ 162,300 1,795,038
-------------
4,611,389
-------------
FRANCE--8.9%
Alcatel (Telecommunications
(Cellular/Wireless)).......................... 15,600 1,910,201
Alstom (Machinery (Diversified))................ 73,500 1,723,681
AXA-UAP (Insurance (Multi-Line))................ 23,369 3,388,624
Castorama Dubois (Retail (Building Supplies))... 4,000 912,995
Coflexip SA (Oil & Gas (Drilling &
Equipment))................................... 13,800 936,303
Compagnie Financiere de Paribas (Investment
Banking/Brokerage)............................ 24,500 2,130,259
Elf Aquitaine SA (Oil (International
Integrated)).................................. 14,250 1,647,956
Galeries Lafayette (Retail (Department
Stores))...................................... 1,730 1,858,214
Groupe Danone (Foods)........................... 7,350 2,105,259
Pechiney SA Class A (Aluminum).................. 24,300 793,903
Pinault-Printemps-Redoute SA (Retail (Department
Stores))...................................... 7,800 1,491,297
Rhodia SA (Chemicals (Specialty))(b)............ 73,000 1,110,811
Total SA Class B (Oil (International
Integrated)).................................. 14,900 1,509,736
-------------
21,519,239
-------------
GERMANY--8.6%
Adidas-Salomon AG (Textiles (Apparel)).......... 10,150 1,103,049
Bayerische Motoren Werke AG (Automobiles)....... 2,100 1,630,302
Bayerische Motoren Werke AG New
(Automobiles)(b).............................. 630 467,151
Bayerische Vereinsbank AG (Banks (Major
Regional)).................................... 25,600 2,005,860
DaimlerChrysler AG (Automobiles)................ 21,105 2,084,498
Hoechst AG (Chemicals).......................... 29,500 1,223,912
Mannesmann AG (Machinery (Diversified))......... 30,000 3,440,367
Metro AG (Retail (Department Stores))........... 40,920 3,267,664
Muenchener Rueckversicherungs-Gesellschaft AG
(Insurance (Reinsurance))..................... 5,720 2,771,531
RWE AG (Oil (International Integrated))......... 30,400 1,665,546
SAP AG (Computers (Software & Services))........ 2,300 1,098,132
-------------
20,758,012
-------------
GREECE--0.3%
Alpha Credit Bank (Banks (Major Regional))...... 6,150 641,701
-------------
HONG KONG--1.2%
Hongkong Electric Holdings Ltd. (Electric
Companies).................................... 500,000 1,516,712
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C> <C>
HONG KONG--CONTINUED
Swire Pacific Ltd. Class B (Diversified
Miscellaneous)(b)............................. 2,000,000 $ 1,329,544
-------------
2,846,256
-------------
HUNGARY--0.6%
Magyar Tavkozlesi Rt Sponsored ADR
(Telecommunications (Long Distance)).......... 50,200 1,496,588
-------------
INDIA--0.3%
Mahanagar Telephone Nigam Ltd. GDR (Telephone).. 60,000 742,500
-------------
INDONESIA--0.4%
PT Indosat (Telecommunications
(Cellular/Wireless)).......................... 229,000 300,301
PT Indosat ADR (Telecommunications (Cellular/
Wireless)).................................... 50,000 609,375
-------------
909,676
-------------
ISRAEL--0.2%
Koor Industries Ltd. (Telephone)................ 6,110 533,156
-------------
ITALY--5.3%
Istituto Bancario San Paolo di Torino SPA (Banks
(Money Center))............................... 187,159 3,314,372
Mediolanum SPA (Insurance (Life/Health))........ 420,000 3,120,276
Telecom Italia Mobile SPA (Telecommunications
(Cellular/Wireless)).......................... 460,000 3,403,497
Telecom Italia SPA (Communications Equipment)... 356,000 3,044,225
-------------
12,882,370
-------------
JAPAN--16.5%
77 Bank Ltd. (The) (Banks (Major Regional))..... 190,000 1,903,426
Canon, Inc. (Office Equipment & Supplies)....... 90,000 1,926,920
Dai Nippon Printing Co., Ltd. (Specialty
Printing)..................................... 126,000 2,012,933
Fuji Photo Film Co. (Photography/Imaging)....... 45,000 1,675,582
Hitachi Credit Corp. (Consumer Finance)......... 100,000 2,225,244
Ito-Yokado Co., Ltd. (Retail (General
Merchandise))................................. 45,000 3,151,690
Kao Corp. (Personal Care)....................... 105,000 2,373,742
Kawasumi Laboratories, Inc. (Health Care
(Medical Products & Supplies))................ 98,000 1,928,781
Kirin Beverage Corp. (Beverages
(Non-Alcoholic)).............................. 83,000 1,640,918
Mabuchi Motor Co., Ltd. (Electronics (Component
Distributors))................................ 30,000 2,300,601
Nippon COMSYS Corp. (Communications
Equipment).................................... 148,000 2,019,316
Nippon Telegraph & Telephone Corp.
(Telephone)................................... 1,800 1,391,531
Rinnai Corp. (Building Materials)............... 107,000 1,874,454
Rohm Co., Ltd (Electronics (Semiconductors)).... 22,000 2,006,975
Sanwa Bank Ltd. (The) (Banks (Money Center)).... 279,000 2,154,400
Secom Co., Ltd. (Services (Commercial &
Consumer)).................................... 30,000 2,489,437
Shin-Etsu Chemical Co., Ltd. (Chemicals)........ 100,000 2,411,420
Suzuki Motor Corp. (Automobiles)................ 175,000 2,078,963
Takeda Chemical Industries Ltd. (Health Care
(Drugs-Major Pharmaceuticals))................ 60,000 2,313,899
-------------
39,880,232
-------------
MALAYSIA--0.2%
Carlsberg Brewery Malaysia Berhad (Beverages
(Alcoholic))(c)............................... 150,000 358,553
Malaysian Oxygen Berhad (Chemicals)(c).......... 104,000 164,211
-------------
522,764
-------------
MEXICO--1.7%
Cemex SA de C.V. Class B (Building Materials)... 185,000 457,369
Cemex SA de C.V. CPO (Building Materials)....... 5,550 11,869
Coca-Cola Femsa SA Sponsored ADR (Beverages
(Non-Alcoholic)).............................. 59,800 792,350
</TABLE>
See Notes to Financial Statements
28
<PAGE>
INTERNATIONAL SERIES
<TABLE>
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C> <C>
MEXICO--CONTINUED
Telefonos de Mexico SA Sponsored ADR Class L
(Telephone)................................... 56,700 $ 2,760,581
-------------
4,022,169
-------------
NETHERLANDS--7.1%
AKZO Nobel NV (Chemicals)....................... 48,450 2,207,354
ASM Lithography Holding NV (Electronics
(Semiconductors))(b).......................... 54,400 1,663,883
Fortis Amev NV (Insurance (Multi-Line))......... 22,700 1,882,121
Getronics NV (Computers (Software &
Services)).................................... 49,000 2,428,237
Koninklijke Ahold NV (Foods).................... 65,900 2,437,008
Koninklijke KPN NV (Telecommunications
(Cellular/ Wireless))......................... 31,100 1,557,759
Royal Dutch Petroleum Co. NV (Oil (International
Integrated)).................................. 50,500 2,516,026
Verenigde Nederlandse Uitgerersbedrijven NV
(Publishing).................................. 66,800 2,520,123
-------------
17,212,511
-------------
NEW ZEALAND--0.2%
Telecom Corporation of New Zealand Ltd.
(Telecommunications (Cellular/Wireless))...... 100,000 435,812
-------------
PHILIPPINES--0.4%
Ayala Land, Inc. (Real Estate Development)...... 1,500,000 424,177
Philippine Long Distance Telephone Co. Sponsored
ADR (Telephone)............................... 23,000 596,563
-------------
1,020,740
-------------
POLAND--0.3%
Elektrim Spolka Akcyjna SA (Electrical
Equipment).................................... 65,000 703,720
-------------
SINGAPORE--0.8%
Rothmans Industries Ltd. (Tobacco).............. 175,000 1,050,025
United Overseas Bank Ltd. (Banks (Money
Center))...................................... 140,000 899,416
-------------
1,949,441
-------------
SOUTH AFRICA--0.3%
Liberty Life Association of Africa (Insurance
(Life/ Health))............................... 35,000 481,928
South African Breweries Ltd. (Beverages
(Alcoholic)).................................. 19,000 320,079
-------------
802,007
-------------
SOUTH KOREA--0.2%
Pohang Iron & Steel Co. Ltd. (Iron & Steel)..... 6,000 382,989
-------------
SPAIN--3.7%
Argentaria, Caja Postal y Banco Hipotecario de
Espana SA (Banks (Major Regional))............ 89,300 2,316,144
Banco Popular Espanol SA (Banks (Major
Regional)).................................... 29,900 2,257,937
Banco Santander SA (Banks (Money Center))....... 2,387 47,507
Iberdrola SA (Electric Companies)............... 65,100 1,219,838
Telefonica de Espana SA (Telephone)............. 68,854 3,066,305
-------------
8,907,731
-------------
SWEDEN--4.5%
AssiDoman AB (Paper & Forest Products).......... 70,000 1,105,417
Astra AB Class A (Health Care (Drugs-Major
Pharmaceuticals))............................. 91,100 1,860,092
Forenings Sparbanken AB (Banks (Major
Regional)).................................... 40,400 1,046,692
Mandamus AB (Real Estate Development)(b)........ 2,020 11,339
Skandia Forsakrings AB (Insurance
(Multi-Line))................................. 159,700 2,443,119
Svenska Handlesbanken Class A (Banks (Major
Regional)).................................... 37,300 1,573,813
Telefonaktiebolaget LM Ericsson Class B
(Telecommunications (Cellular/Wireless))...... 44,500 1,059,584
Volvo AB Class B (Automobiles).................. 76,000 1,743,992
-------------
10,844,048
-------------
SWITZERLAND--7.9%
Nestle AG (Foods)............................... 490 1,066,706
<CAPTION>
SHARES VALUE
----------- -------------
<S> <C> <C> <C>
SWITZERLAND--CONTINUED
Novartis AG Registered Shares (Health Care
(Drugs-Major Pharmaceuticals))................ 3,110 $ 6,113,668
Roche Holding AG (Health Care (Drugs-Major
Pharmaceuticals))............................. 270 3,294,697
Schweizerische Lebensversicherungs-und
Rentenanstalt Bearer (Insurance
(Life/Health))................................ 2,530 1,878,877
Schweizerische Rueckersicherungs-Gesellschaft
Registered Shares (Insurance (Reinsurance))... 500 1,303,623
UBS AG (Banks (Money Center))................... 6,700 2,058,567
Zurich Allied AG Registered Shares (Insurance
(Multi-Line))................................. 4,470 3,309,833
-------------
19,025,971
-------------
TAIWAN--0.1%
Standard Foods Taiwan Ltd. GDR (Foods).......... 35,000 345,625
-------------
UNITED KINGDOM--21.2%
3i Group PLC (Investment Banking/Brokerage)..... 110,800 1,069,231
BG PLC (Oil & Gas (Exploration & Production))... 141,000 889,710
Bank of Scotland (Banks (Money Center))......... 126,000 1,503,120
Barclays PLC (Banks (Money Center))............. 57,000 1,229,090
Bass PLC (Beverages (Alcoholic))................ 57,000 829,825
Berkeley Group PLC (The)
(Real Estate Development)..................... 70,000 511,289
British Aerospace PLC (Aerospace/Defense)....... 146,300 1,240,202
British Petroleum Co. PLC (Oil (International
Integrated)).................................. 160,000 2,389,232
British Telecommunications PLC
(Telecommunications (Cellular/Wireless))...... 190,000 2,862,503
Cable & Wireless PLC (Telecommunications
(Cellular/ Wireless))......................... 170,000 2,090,245
Compass Group PLC (Foods)....................... 166,000 1,901,586
FirstGroup PLC (Transportation-Services)........ 128,000 848,676
GKN PLC (Auto Parts & Equipment)................ 81,000 1,074,780
Glaxo Wellcome PLC (Health Care (Drugs-Major
Pharmaceuticals))............................. 105,000 3,612,798
Granada Group PLC (Leisure Time (Products))..... 69,000 1,219,781
HSBC Holdings PLC (Banks (Money Center))........ 51,600 1,399,398
Kingfisher PLC (Retail (Department Stores))..... 133,600 1,445,964
Ladbroke Group PLC (Gaming, Lottery & Parimutuel
Companies).................................... 180,000 723,258
Legal & General Group PLC (Insurance
(Life/Health))................................ 122,000 1,584,297
Lloyds TSB Group PLC (Banks (Money Center))..... 194,000 2,759,762
Logica PLC (Computers (Software & Services)).... 169,000 1,469,186
National Westminster Bank PLC (Banks (Money
Center))...................................... 83,000 1,600,536
Norwich Union PLC (Insurance (Life/Health))..... 133,000 966,470
RMC Group PLC (Building Materials).............. 69,000 941,384
Reuters Group PLC (Services (Commercial &
Consumer)).................................... 96,000 1,007,870
Safeway PLC (Foods)............................. 138,500 695,922
Schroders PLC (Banks (Money Center))............ 51,000 930,852
Siebe PLC (Electrical Equipment)................ 262,000 1,033,126
SmithKline Beecham PLC (Health Care (Drugs-Major
Pharmaceuticals))............................. 139,000 1,942,665
Southern Electric PLC (Electric Companies)...... 112,000 1,266,226
Tesco PLC (Foods)............................... 390,000 1,111,217
Thames Water PLC (Water Utilities).............. 43,000 822,754
Unilever PLC (Consumer Products
(Miscellaneous)).............................. 100,000 1,121,408
Vodafone Group PLC (Telecommunications
(Cellular/ Wireless))......................... 137,000 2,224,714
Woolwich PLC (Banks (Major Regional))........... 240,000 1,445,519
Zeneca Group PLC (Health Care (Drugs-Major
Pharmaceuticals))............................. 36,000 1,567,509
-------------
51,332,105
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $199,294,439)............................... 230,353,795
-------------
</TABLE>
See Notes to Financial Statements
29
<PAGE>
INTERNATIONAL SERIES
<TABLE>
<CAPTION>
SHARES VALUE
----------- -------------
RIGHTS--0.0%
<S> <C> <C> <C>
SPAIN--0.0%
Telefonica SA Rights (Telephone)(b)............. 68,854 $ 61,229
-------------
TOTAL RIGHTS
(Identified cost $0)......................................... 61,229
-------------
WARRANTS--0.0%
GERMANY--0.0%
Muenchener Rueckversicherungs-Gesellschaft AG
Warrants (Insurance (Reinsurance))(b)......... 220 10,039
-------------
TOTAL WARRANTS
(Identified cost $0)......................................... 10,039
-------------
TOTAL LONG-TERM INVESTMENTS--95.2%
(Identified cost $199,294,439)............................... 230,425,063
-------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------------- ---------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.8%
COMMERCIAL PAPER--4.8%
American Home Products Corp. 5.25%, 1/4/99...... A-1+ $ 5,015 $ 5,012,806
Exxon Imperial U.S., Inc. 6%, 1/5/99............ A-1+ 2,541 2,539,306
Corporate Receivables Corp. 5.58%, 1/19/99...... A-1+ 1,635 1,630,438
Preferred Receivables Funding Corp. 5.40%,
2/2/99........................................ A-1 2,430 2,418,336
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $11,600,886)................................................ 11,600,886
---------------
TOTAL INVESTMENTS--100.0%
(Identified cost $210,895,325)............................................... 242,025,949(a)
Cash and receivables, less liabilities--(0.0%)............................... (111,000)
---------------
NET ASSETS--100.0%............................................................. $ 241,914,949
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $38,516,079 and gross
depreciation of $9,591,888 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$213,101,758.
(b) Non-income producing.
(c) Security valued at fair value as determined in good faith by or under the
direction of the Trustees.
See Notes to Financial Statements
30
<PAGE>
INTERNATIONAL SERIES
INDUSTRY DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF
TOTAL LONG-TERM INVESTMENTS
(UNAUDITED)
<TABLE>
<S> <C>
Aerospace/Defense.................................. 0.5%
Aluminum........................................... 0.3
Auto Parts & Equipment............................. 0.5
Automobiles........................................ 3.5
Banks (Major Regional)............................. 5.9
Banks (Money Center)............................... 7.8
Beverages (Alcoholic).............................. 0.6
Beverages (Non-Alcoholic).......................... 1.1
Building Materials................................. 1.4
Chemicals.......................................... 2.6
Chemicals (Specialty).............................. 0.5
Communications Equipment........................... 2.3
Computers (Software & Services).................... 2.2
Consumer Finance................................... 1.0
Consumer Products (Miscellaneous).................. 0.5
Diversified Miscellaneous.......................... 0.6
Electric Companies................................. 1.7
Electrical Equipment............................... 0.7
Electronics (Component Distributors)............... 1.0
Electronics (Semiconductors)....................... 1.6
Foods.............................................. 5.0
Gaming, Lottery & Parimutuel Companies............. 0.3
Health Care (Drugs-Major Pharmaceuticals).......... 9.0
Health Care (Medical Products & Supplies).......... 0.8
Insurance (Life/Health)............................ 3.5
Insurance (Multi-Line)............................. 4.8
Insurance (Property-Casualty)...................... 0.5
Insurance (Reinsurance)............................ 1.8
Investment Banking/Brokerage....................... 1.4
Iron & Steel....................................... 0.2
Leisure Time (Products)............................ 0.5
Machinery (Diversified)............................ 2.2
Office Equipment & Supplies........................ 0.8
Oil & Gas (Drilling & Equipment)................... 0.4
Oil & Gas (Exploration & Production)............... 0.4
Oil (International Integrated)..................... 4.7
Paper & Forest Products............................ 0.5
Personal Care...................................... 1.0
Photography/Imaging................................ 0.7
Publishing......................................... 1.1
Real Estate Development............................ 0.4
Retail (Building Supplies)......................... 0.4
Retail (Department Stores)......................... 3.5
Retail (General Merchandise)....................... 1.4
Services (Commercial & Consumer)................... 1.5
Specialty Printing................................. 0.9
Telecommunications (Cellular/Wireless)............. 8.8
Telecommunications (Long Distance)................. 0.6
Telephone.......................................... 4.8
Textiles (Apparel)................................. 0.5
Tobacco............................................ 0.5
Transportation-Services............................ 0.4
Water Utilities.................................... 0.4
------
100.0%
------
------
</TABLE>
See Notes to Financial Statements
31
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$210,895,325)............................................. $ 242,025,949
Cash........................................................ 74,722
Foreign currency at value (Identified cost $592,039)........ 592,040
Receivables
Dividends and interest.................................... 176,861
Investment securities sold................................ 27,193
Tax reclaim............................................... 172,304
Prepaid expenses............................................ 4,511
-------------
Total assets............................................ 243,073,580
-------------
LIABILITIES
Payables
Investment securities purchased........................... 611,879
Fund shares repurchased................................... 135,829
Investment advisory fee................................... 147,538
Financial agent fee....................................... 16,913
Trustees' fee............................................. 7,155
Accrued expenses.......................................... 239,317
-------------
Total liabilities....................................... 1,158,631
-------------
NET ASSETS.................................................. $ 241,914,949
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 199,365,963
Undistributed net investment income....................... 1,208,686
Accumulated net realized gain............................. 10,224,917
Net unrealized appreciation............................... 31,115,383
-------------
NET ASSETS.................................................. $ 241,914,949
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 15,651,855
-------------
-------------
Net asset value and offering price per share................ $ 15.46
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 3,482,925
Interest.................................................. 511,349
Foreign taxes withheld.................................... (129,367)
-------------
Total investment income................................. 3,864,907
-------------
EXPENSES
Investment advisory fee................................... 1,704,109
Financial agent fee....................................... 178,882
Custodian................................................. 211,366
Printing.................................................. 69,483
Professional.............................................. 27,179
Trustees.................................................. 21,583
Miscellaneous............................................. 20,501
-------------
Total expenses.......................................... 2,233,103
-------------
NET INVESTMENT INCOME....................................... 1,631,804
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 50,178,449
Net realized gain on foreign currency transactions........ 864,638
Net change in unrealized appreciation (depreciation) on
investments............................................. 562,170
Net change in unrealized appreciation (depreciation) on
foreign currency and foreign currency transactions...... (411,356)
-------------
NET GAIN ON INVESTMENTS..................................... 51,193,901
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 52,825,705
-------------
-------------
</TABLE>
See Notes to Financial Statements
32
<PAGE>
INTERNATIONAL SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 1,631,804 $ 1,372,460
Net realized gain (loss).................................. 51,043,087 13,881,538
Net change in unrealized appreciation (depreciation)...... 150,814 5,898,443
----------------- -----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... 52,825,705 21,152,441
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... -- (2,638,818)
Net realized gains........................................ (41,161,214) (18,496,435)
In excess of accumulated net realized gains............... -- (204,295)
----------------- -----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (41,161,214) (21,339,548)
----------------- -----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (3,647,895 and 3,308,827
shares, respectively)................................... 63,751,174 50,646,953
Net asset value of shares issued from reinvestment of
distributions
(2,641,331 and 1,433,541 shares, respectively).......... 41,161,214 21,339,548
Cost of shares repurchased (3,994,250 and 3,280,469
shares, respectively)................................... (68,770,405) (50,358,574)
----------------- -----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 36,141,983 21,627,927
----------------- -----------------
NET INCREASE IN NET ASSETS................................ 47,806,474 21,440,820
NET ASSETS
Beginning of period....................................... 194,108,475 172,667,655
----------------- -----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME AND DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $1,208,686 AND ($1,443,875), RESPECTIVELY).... $241,914,949 $194,108,475
----------------- -----------------
----------------- -----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 14.53 $ 14.52 $ 12.70 $ 11.85 $ 12.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.12(1) 0.12(1) 0.11(1) 0.12(1) 0.08(1)
Net realized and unrealized gain
(loss).......................... 3.94 1.61 2.25 1.02 (0.07)
----------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT
OPERATIONS.................... 4.06 1.73 2.36 1.14 0.01
----------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... -- (0.22) (0.19) (0.04) (0.03)
Dividends from net realized
gains........................... (3.13) (1.50) (0.33) (0.25) (0.34)
In excess of net investment
income.......................... -- -- (0.02) -- --
----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS............. (3.13) (1.72) (0.54) (0.29) (0.37)
----------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE........... 0.93 0.01 1.82 0.85 (0.36)
----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD...... $ 15.46 $ 14.53 $ 14.52 $ 12.70 $ 11.85
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Total return........................ 27.92% 12.04% 18.65% 9.59% 0.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $241,915 $194,108 $172,668 $134,455 $134,627
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.98% 1.01% 1.04% 1.07% 1.10%
Net investment income............. 0.72% 0.72% 0.80% 0.95% 0.64%
Portfolio turnover rate............. 93% 184% 142% 249% 172%
</TABLE>
(1) Computed using average shares outstanding.
See Notes to Financial Statements
33
<PAGE>
BALANCED SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term appreciation through
investments in a combination of common stocks and fixed-income securities,
including foreign and high-yield debt issues. Investors should note that foreign
investing involves special risks, such as currency fluctuations, less public
disclosure, and economic and political risks, and high-yield securities have
more risk than higher quality, lower-yielding issues.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 19.01% compared
with 19.67% for a composite benchmark(1). All performance figures assume
reinvestment of distributions and are net of sales charges.
The 1998 calendar year proved to be one of the more difficult investment
years in recent memory given the extreme volatility in the global equity and
fixed income markets. In fact, U.S. equities by many measures had not seen this
level of volatility since the 1987 market crash. Not since 1990 were bond
investors punished so severely for owning anything other than U.S. Government
securities.
While 1998 turned out to be an excellent year for large-cap stocks,
small-capitalization stocks continued to underperform and profitability at many
cyclical companies came under pressure due to weakness in the international
markets and falling commodity prices. Recognizing these trends, we focused our
stock selection on large-capitalization companies with predictable revenue
streams and a domestic focus. The Fund's heavy bias towards large-cap names and
its overweighting in the health-care, consumer staples and technology sectors
were the primary drivers for our strong equity performance last year.
Despite the obvious temptation to raise cash during this summer's sell-off,
our decision to remain fully invested in stocks also paid off handsomely as the
market has rebounded dramatically from its early October lows. On the other side
of the equation, the most notable factor that held back performance over this
latest reporting period was the Fund's underweighted position in the strongly
performing consumer cyclical group during the final quarter. While we were not
expecting a recession anytime soon, we were somewhat surprised by the strength
of the U.S consumer over this latest quarter.
With respect to the fixed-income portion of the Fund, the interest rate
roller coaster ride of 1997 (with rates starting out at 6.64%, peaking at 7.15%,
and ending at 5.92%) turned into a "yield ride" in 1998, as many fixed-income
investors began the year reaching for yield in both domestic high-yield
securities and lower quality foreign bonds. Despite the favorable backdrop of a
moderate, stable U.S. economy and historically low rates, this strategy began to
lose favor as global uncertainty caused investor sentiment to shift in the
second half of the year toward a preference for the safety and liquidity of U.S.
Treasuries. With the benefit of three swift rate cuts by the Federal Reserve
Board, the markets began to calm in the fourth quarter, and the 30-year U.S.
Treasury bond closed out the year at 5.09%. While the most recent CPI figures
indicate that U.S. inflation remains benign at a modest 1.6% annualized rate--a
slight slowdown from 1997's 1.7% rate--the mood in the bond market remains
tenuous.
While we are not pleased with our fixed-income results, they can be
explained by a "flight to quality" of unprecedented magnitude. As stated
earlier, the US Treasury sector was the best performing sector in 1998. While
market environments such as this happen relatively infrequently, they penalize
managers such as ourselves that have a significant underweighting to U.S.
Treasuries. It is noteworthy that since 1980 there was only one occurrence where
U.S. Treasuries were the best performing bond market sector two years in a row.
During this difficult time, we remained true to our discipline and remained
fully allocated to those non-core sectors we believed were the most attractive
from a risk-reward perspective. We believe that this is the most prudent manner
in which to manage assets particularly during extreme market moves.
OUTLOOK
As we enter 1999, the stock market and U.S. economy continue to be strong.
Despite some weakness in exports and the manufacturing sector, robust consumer
spending has made the U.S. economy the strongest in the industrialized world.
Recent data on employment, personal income, consumer spending, and consumer
confidence are all encouraging. Yet, there is a fundamental disconnect between
the economy and corporate profits. Profits for 1998 were about flat with 1997,
and we expect only slight improvement this year. This tough earnings environment
over the past year benefited steady growth groups, such as health-care and
communication services. We don't see this changing for the foreseeable future.
Actually, we see the torrid pace of economic growth slowing somewhat in 1999.
Overall, we remain cautiously optimistic on the stock market. While we
expect corporate profits to remain under pressure, this current environment of
benign inflation and historically low interest rates should continue to be a
positive catalyst for
(1) The benchmark is calculated based upon the performance of the following
indices: 55% S&P 500/35% Lehman Brothers Aggregate Bond Index/10% 90-day
Treasury bills and is produced by Frank Russell Company. It is not available
for direct investment.
34
<PAGE>
BALANCED SERIES
financial assets. After four straight years of double-digit gains, it is also
likely that we will see more normalized (single-digit) returns for U.S. equities
in 1999. Lastly, we believe that the financial markets will remain volatile over
the near term, as there are still many cross currents at work in the global
financial systems.
Although we anticipate a slowdown in the U.S. economy, we do not expect the
recession that seems to be factored into the domestic high-yield market
currently. We do expect that this sector's defaults will pick up in 1999;
however, the level being priced into the market is extremely high. Our holdings
in this area represent a diversified group of securities in industries with good
fundamentals, and solid underlying businesses. In addition, we have significant
exposure to U.S. dollar-denominated below investment-grade foreign holdings.
This sector remains among the most attractive from a risk-reward perspective. We
own debt securities of countries that have good fundamentals and more stable
political situations, such as Mexico, Argentina, Panama, Bulgaria, Peru, and the
Philippines.
We believe the fixed-income portion of the Fund is well structured to take
advantage of current market conditions, and we will continue to emphasize the
credit-sensitive sectors given their very favorable valuations. The market is
paying investors a large yield premium or yield advantage as compensation for
taking risk. Priced into this premium is much bad news. For those investors
willing and able to be patient and discerning, we believe these factors present
outstanding opportunities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
BALANCED SERIES BALANCED BENCHMARK*
<S> <C> <C>
5/1/92 $10,000.00 $10,000.00
12/31/92 $10,971.78 $10,712.00
12/31/93 $11,912.44 $11,702.48
12/31/94 $11,578.97 $11,724.94
12/31/95 $14,274.25 $14,917.45
12/31/96 $15,781.89 $17,055.78
12/31/97 $18,611.77 $20,799.83
12/31/98 $22,150.60 $24,890.59
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING
12/31/98
FROM
INCEPTION
5/1/92
TO
1 YEAR 5 YEARS 12/31/98
<S> <C> <C> <C>
- - ---------------------------------------------------------------------
Balanced Series 19.01% 13.21% 12.66%
- - ---------------------------------------------------------------------
Balanced Benchmark* 19.67% 16.29% 14.65%
- - ---------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 5/1/92
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the
stated period. Returns indicate past performance, which is not predictive of
future performance. Investment return and net asset value will fluctuate so
that your shares, when redeemed, may be worth more or less than the original
cost. Foreign investing involves special risks such as currency fluctuation
and less public disclosure, as well as economic and political risks.
* The Balanced Benchmark is calculated based upon the performance of the
following indices: 55% S&P 500/35% Lehman Brothers Aggregate Bond
Index/10% 90-day Treasury Bills and is produced by Frank Russell Company.
The index is not available for direct investment.
35
<PAGE>
BALANCED SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--8.7%
U.S. TREASURY NOTES--8.7%
U.S. Treasury Notes 6.375%, 5/15/99....................... AAA $ 1,775 $ 1,786,215
U.S. Treasury Notes 5.375%, 1/31/00....................... AAA 4,075 4,106,708
U.S. Treasury Notes 5.50%, 3/31/00........................ AAA 750 757,695
U.S. Treasury Notes 6.875%, 3/31/00....................... AAA 3,100 3,181,639
U.S Treasury Notes 6.00%, 8/15/00......................... AAA 1,700 1,735,722
U.S. Treasury Notes 4.50%, 9/30/00........................ AAA 355 354,391
U.S. Treasury Notes 4.625%, 11/30/00...................... AAA 500 500,295
U.S. Treasury Notes 5.25%, 8/15/03........................ AAA 3,105 3,183,336
U.S. Treasury Notes 5.625%, 5/15/08....................... AAA 8,284 8,840,301
-------------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $24,749,800)................................................. 24,446,302
-------------
AGENCY MORTGAGE-BACKED SECURITIES--3.0%
GNMA 6.50%, 11/15/23...................................... AAA 1,481 1,505,842
GNMA 6.50%, 2/15/24....................................... AAA 2,448 2,488,792
GNMA 6.50%, 12/15/23...................................... AAA 520 528,984
GNMA 6.50%, 6/15/28....................................... AAA 3,956 3,997,132
-------------
TOTAL AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $8,291,401).................................................. 8,520,750
-------------
MUNICIPAL BONDS--6.7%
CALIFORNIA--1.7%
California State Department Water Resources Revenue Series
S 5%, 12/1/29........................................... AA 450 444,937
Fresno County Pension Obligation Taxable 6.21%, 8/15/06... AAA 1,000 1,033,750
Kern County Pension Obligation Revenue Taxable 7.26%,
8/15/14................................................. AAA 420 464,100
Long Beach Pension Obligation Taxable 6.87%, 9/1/06....... AAA 230 246,962
Los Angeles County Public Works PJ V-B 5.125%, 12/1/29.... AAA 685 689,281
Orange County Pension Obligation Revenue Taxable Series A
7.62%, 9/1/08........................................... AAA 650 735,312
San Bernardino County Pension Obligation Revenue Taxable
6.87%, 8/1/08........................................... AAA 110 118,387
San Bernardino County Pension Obligation Revenue Taxable
6.94%, 8/1/09........................................... AAA 300 325,125
Sonoma County Pension Obligation 6.625%, 6/1/13........... AAA 495 517,894
Ventura County Pension Obligation Taxable 6.54%,
11/1/05................................................. AAA 260 273,325
-------------
4,849,073
-------------
FLORIDA--0.7%
Florida State Department of Transportation Series A 5%,
7/1/27.................................................. AA+ 545 541,594
Miami Beach Special Obligation Revenue Taxable 8.60%,
9/1/21.................................................. AAA 875 999,688
University of Miami Revenue Taxable Series A 7.65%,
4/1/20.................................................. AAA 270 289,238
-------------
1,830,520
-------------
ILLINOIS--0.6%
Illinois Educational Facilities Authority-Loyola
University Revenue Taxable Series A 7.84%, 7/1/24....... AAA 1,500 1,625,625
-------------
MASSACHUSETTS--0.4%
Massachusetts State Port Authority Revenue Taxable Series
C 6.05%, 7/1/02......................................... AA- 450 459,000
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
MASSACHUSETTS--CONTINUED
Massachusetts State Water Resources Authority Revenue
Series D 5%, 8/1/24..................................... AAA $ 545 $ 538,188
-------------
997,188
-------------
NEW YORK--1.1%
Metropolitan Transportation Authority Series A 5%,
4/1/23.................................................. AAA 760 756,200
New York State Dormitory Authority
Pension Obligation Revenue Taxable
6.90%, 4/1/03........................................... BBB+ 650 677,625
New York State Taxable Series C 6.35%, 3/1/07............. AAA 1,500 1,558,125
-------------
2,991,950
-------------
PENNSYLVANIA--0.7%
Pittsburgh Pension Taxable 6.50%, 3/1/17.................. AAA 1,250 1,303,125
Pittsburgh Water & Sewer Authority Series A 5.05%,
9/1/25.................................................. AAA 760 758,100
-------------
2,061,225
-------------
TEXAS--1.1%
Dallas-Fort Worth Taxable 6.40%, 11/1/07.................. AAA 1,000 1,045,000
Houston Water & Sewer System
Revenue Refunding, Jr. Lien,
Series D 5%, 12/1/25.................................... AAA 685 671,300
Texas State General Obligation Series B 5.25%, 10/1/08.... AA 275 297,688
Texas State Taxable Veterans Limited Series B 6.10%,
12/1/03................................................. AA 1,000 1,026,250
-------------
3,040,238
-------------
VIRGINIA--0.4%
Newport News Taxable Series B 7.05%, 1/15/25.............. AA 1,000 1,032,500
-------------
TOTAL MUNICIPAL BONDS
(Identified cost $17,715,922)................................................. 18,428,319
-------------
ASSET-BACKED SECURITIES--1.1%
AESOP Funding II LLC 97-1, A2 144A 6.40%, 10/20/03 (c).... AAA 1,200 1,227,000
Capita Equipment Receivables Trust 97-1, B 6.45%,
8/15/02................................................. A+ 770 777,700
Fleetwood Credit Corp. Grantor Trust 96-B, A 6.90%,
3/15/12................................................. AAA 411 416,964
Green Tree Financial Corp. 96-2, M1 7.60%, 4/15/27........ AA- 675 700,523
-------------
TOTAL ASSET-BACKED SECURITIES
(Identified cost $3,056,773).................................................. 3,122,187
-------------
CORPORATE BONDS--4.4%
COMPUTERS (SOFTWARE & SERVICES)--0.5%
CSC Holdings Inc. 7.625%, 7/15/18......................... BB+ 1,000 1,003,750
Computer Associates International Series B 6.375%,
4/15/05................................................. A- 535 526,975
-------------
1,530,725
-------------
GAMING, LOTTERY & PARIMUTUEL COMPANIES--0.2%
Station Casinos, Inc. 10.125%, 3/15/06.................... B+ 500 522,500
-------------
HEALTH CARE (DIVERSIFIED)--0.4%
Tenet Healthcare Corp 144A 8.125%, 12/1/08 (c)............ BB- 1,000 1,036,250
-------------
</TABLE>
See Notes to Financial Statements
36
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.3%
Boston Scientific Corp. 6.625%, 3/15/05................... BBB $ 975 $ 920,156
-------------
LEASING/RENTAL--0.1%
United Rentals, Inc. 9.50%, 6/01/08....................... BB- 250 252,500
-------------
MANUFACTURING (DIVERSIFIED)--0.2%
Tyco International Group SA 6.375%, 6/15/05............... A- 600 609,750
-------------
PAPER & FOREST PRODUCTS--0.3%
Buckeye Cellulose Corp. 8.50%, 12/15/05................... BB 700 726,250
-------------
PERSONAL CARE--0.2%
Revlon Consumer Products 144A 9%, 11/1/06 (c)............. B 500 495,000
-------------
PUBLISHING--0.2%
Hollinger International Publishing, Inc. 9.25%, 3/15/07... B 625 660,937
-------------
RETAIL (FOOD CHAINS)--0.4%
Meyer (Fred), Inc. 7.45%, 3/1/08.......................... BB+ 1,000 1,082,500
-------------
SERVICES (COMMERCIAL & CONSUMER)--0.1%
United Rentals, Inc. 144A 8.80%, 8/15/08 (c).............. BB- 250 244,375
-------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.4%
Comcast Cellular Holdings, Inc. Series B 9.50%, 5/1/07.... BB+ 1,000 1,065,000
-------------
TELECOMMUNICATIONS (LONG DISTANCE)--0.4%
Quest Communications International Inc. 144A 7.50%,
11/1/08 (c)............................................. BB+ 1,100 1,148,125
-------------
TELEPHONE--0.1%
Nextlink Communications, Inc. 144A 10.75%, 11/15/08 (c)... B 370 379,250
-------------
TEXTILES (HOME FURNISHINGS)--0.4%
Westpoint Stevens, Inc. 7.875%, 6/15/05................... BB 1,000 1,025,000
-------------
TRUCKERS & MARINE--0.1%
Teekay Shipping Corp. 8.32%, 2/1/08....................... BB+ 230 228,563
-------------
TRUCKS & PARTS--0.1%
Cummins Engine Inc. 6.45%, 3/1/05......................... BBB+ 400 390,500
-------------
TOTAL CORPORATE BONDS
(Identified cost $11,921,026)................................................. 12,317,381
-------------
NON-AGENCY MORTGAGE-BACKED SECURITIES--6.1%
CS First Boston Mortgage Securities Corp. 95-AEW1, B
7.182%, 11/25/27........................................ AA- 424 423,081
CS First Boston Mortgage Securities Corp. 97-C2, B 6.72%,
11/17/07................................................ Aa(d) 2,000 2,067,500
Case Equipment Loan Trust 98-A, A4, 5.83%, 2/15/05........ AAA 1,750 1,769,985
DLJ Mortgage Acceptance Corp. 144A 96-CF1, A1B 7.58%,
2/12/06 (c)(f).......................................... AAA 1,400 1,479,187
First Union-Lehman Brothers 97-C1, B 7.43%, 4/18/07....... Aa(d) 930 1,005,272
G.E. Capital Mortgage Services, Inc. 96-8, 1M 7.25%,
5/25/26................................................. AA 243 246,078
Lehman Large Loan 97-LLI, B 6.95%, 3/12/07................ AA 825 868,312
Mortgage Capital Funding, Inc. 96-MC2, A3, 7.008%,
9/20/06................................................. Aaa(d) 2,000 2,103,125
Nationslink Funding Corp. 96-1, B 7.69%, 12/20/05......... AA 450 479,672
Norwest Asset Securities Corp. 96-9, A15 7.75% 1/25/27.... Aaa(d) 2,000 2,030,000
Residential Asset Securitization Trust 96-A8, A1 8%,
12/25/26................................................ AAA 96 95,568
Residential Funding Mortgage Securities I 96-S8, A4 6.75%,
3/25/11................................................. AAA 618 624,380
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
NON-AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
Residential Funding Mortgage Securities I 96-S1, A11
7.10%, 1/25/26.......................................... AAA $ 1,000 $ 1,006,250
Residential Funding Mortgage Securities I 96-S4, M1 7.25%,
2/25/26................................................. AA 969 974,034
Structured Asset Securities Corp. 93-C1, 6.60%,
10/25/24................................................ A+ 525 526,684
Triangle Funding Ltd. 98-2A, 3, 144A 7.163%, 10/15/04
(c)..................................................... BBB 1,500 1,494,375
-------------
TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(Identified cost $16,952,519)................................................. 17,193,503
-------------
FOREIGN GOVERNMENT SECURITIES--1.5%
COLOMBIA--0.4%
Republic of Colombia 7.70% 7/14/03........................ NR 610 530,700
Republic of Colombia 7.25%, 2/23/04....................... BBB- 825 703,312
-------------
1,234,012
-------------
CROATIA--0.4%
Croatia Series B 6.563%, 7/31/06 (e)...................... BBB- 679 549,654
Croatia Series A 6.563%, 7/31/10 (e)...................... BBB- 775 620,000
-------------
1,169,654
-------------
POLAND--0.7%
Poland Bearer PDI 5%, 10/27/14............................ BBB- 1,450 1,358,469
Poland Discount Euro 6.78%, 10/27/24...................... BBB- 600 595,500
-------------
1,953,969
-------------
TOTAL FOREIGN GOVERNMENT SECURITIES
(Identified cost $4,525,825).................................................. 4,357,635
-------------
FOREIGN CORPORATE BONDS--0.9%
ARGENTINA--0.2%
Compania de Radiocomunicaciones Moviles SA 144A 9.25%,
5/8/08 (c).............................................. BBB 300 277,500
Telefonica de Argentina 144A 9.125%, 5/7/08 (c)........... BBB- 290 268,250
-------------
545,750
-------------
CHILE--0.1%
Compania Sud Americana de Vapores SA 7.375%, 12/8/03...... BBB 120 108,600
Petropower I Funding Trust 144A, 7.36%, 2/15/14 (c)....... BBB 350 295,312
-------------
403,912
-------------
JAPAN--0.6%
IBJ Preferred Capital Co. LLC 144A 8.79%, 12/29/49
(c)(e).................................................. Baa(d) 910 784,019
SB Treasury Co. LLC 144A 9.40%, 12/29/49 (c)(e)........... BB+ 910 866,079
-------------
1,650,098
-------------
TOTAL FOREIGN CORPORATE BONDS
(Identified cost $2,871,089).................................................. 2,599,760
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
--------
<S> <C> <C> <C>
COMMON STOCKS--61.0%
BANKS (MAJOR REGIONAL)--2.2%
Bank One Corp....................................................... 29,850 1,524,216
Mellon Bank Corp.................................................... 17,200 1,182,500
U.S. Bancorp........................................................ 24,400 866,200
Wells Fargo & Co.................................................... 67,000 2,675,812
-------------
6,248,728
-------------
</TABLE>
See Notes to Financial Statements
37
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
SHARES VALUE
---------- -------------
<S> <C> <C> <C>
BANKS (MONEY CENTER)--0.8%
BankAmerica Corp................................ 36,882 $ 2,217,530
-------------
BEVERAGES (ALCOHOLIC)--0.6%
Anheuser-Busch Companies, Inc................... 26,600 1,745,625
-------------
BEVERAGES (NON-ALCOHOLIC)--0.9%
PepsiCo, Inc.................................... 64,500 2,640,469
-------------
BROADCASTING (TELEVISION, RADIO & CABLE)--3.0%
CBS Corp........................................ 26,200 858,050
Chancellor Media Corp. (b)...................... 21,400 1,024,525
Clear Channel Communications, Inc. (b).......... 16,300 888,350
Fox Entertainment Group, Inc. Class A (b)....... 21,200 533,975
Liberty Media Group ClassA (b).................. 44,600 2,054,387
Tele-Communications, Inc. Class A (b)........... 55,200 3,053,250
-------------
8,412,537
-------------
COMMUNICATIONS EQUIPMENT--0.5%
Tellabs, Inc. (b)............................... 19,600 1,343,825
-------------
COMPUTERS (HARDWARE)--2.2%
International Business Machines Corp............ 33,000 6,096,750
-------------
COMPUTERS (NETWORKING)--1.0%
Cisco Systems, Inc. (b)......................... 29,125 2,703,164
-------------
COMPUTERS (PERIPHERALS)--1.0%
EMC Corp. (b)................................... 32,500 2,762,500
-------------
COMPUTERS (SOFTWARE & SERVICES)--7.3%
America Online, Inc. (b)........................ 10,700 1,712,000
BMC Software, Inc. (b).......................... 59,600 2,655,925
Compuware Corp. (b)............................. 54,500 4,257,812
Edwards (J.D.) & Co. (b)........................ 21,200 601,550
HBO & Co........................................ 95,300 2,733,919
Microsoft Corp. (b)............................. 41,300 5,727,794
Oracle Corp. (b)................................ 36,800 1,587,000
Sterling Commerce, Inc. (b)..................... 22,600 1,017,000
-------------
20,293,000
-------------
CONSUMER FINANCE--0.8%
Capital One Financial Corp...................... 18,900 2,173,500
-------------
DISTRIBUTORS (FOOD & HEALTH)--1.0%
Cardinal Health, Inc............................ 37,650 2,856,694
-------------
ELECTRICAL EQUIPMENT--1.7%
General Electric Co............................. 45,200 4,613,225
-------------
ELECTRONICS (SEMICONDUCTORS)--3.1%
Intel Corp...................................... 63,800 7,564,287
Micron Technology, Inc. (b)..................... 23,600 1,193,275
-------------
8,757,562
-------------
FINANCIAL (DIVERSIFIED)--3.0%
Citigroup, Inc.................................. 49,700 2,460,150
Freddie Mac..................................... 59,200 3,814,700
Morgan Stanley Dean Witter & Co. (b)............ 28,500 2,023,500
-------------
8,298,350
-------------
HEALTH CARE (DIVERSIFIED)--3.6%
Bristol-Myers Squibb Co. (b).................... 36,600 4,897,537
Mylan Laboratories, Inc......................... 33,300 1,048,950
Warner-Lambert Co............................... 56,300 4,233,056
-------------
10,179,543
-------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--4.1%
Pfizer, Inc..................................... 43,800 5,494,162
Schering-Plough Corp............................ 70,000 3,867,500
Watson Pharmaceuticals, Inc. (b)................ 31,800 1,999,425
-------------
11,361,087
-------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--2.3%
Baxter International, Inc. (b).................. 32,700 2,103,019
Becton, Dickinson and Co........................ 16,900 721,419
<CAPTION>
SHARES VALUE
---------- -------------
<S> <C> <C> <C>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--CONTINUED
Genzyme Corp. (b)............................... 17,200 $ 855,700
Medtronic, Inc.................................. 38,600 2,866,050
-------------
6,546,188
-------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.3%
Clorox Co. (The)................................ 5,600 654,150
Colgate-Palmolive Co............................ 8,600 798,725
Procter & Gamble Co. (The)...................... 24,600 2,246,287
-------------
3,699,162
-------------
INSURANCE (LIFE/HEALTH)--0.4%
UNUM Corp....................................... 19,000 1,109,125
-------------
INSURANCE (MULTI-LINE)--1.1%
American International Group, Inc............... 22,200 2,145,075
ReliaStar Financial Corp........................ 22,600 1,042,425
-------------
3,187,500
-------------
LODGING--HOTELS--0.3%
Carnival Corp................................... 18,300 878,400
-------------
MANUFACTURING (DIVERSIFIED)--1.3%
Tyco International Ltd.......................... 48,600 3,666,262
-------------
OIL & GAS (DRILLING & EQUIPMENT)--0.3%
Halliburton Co.................................. 11,100 328,838
Schlumberger Ltd................................ 7,200 332,100
Transocean Offshore, Inc........................ 11,200 300,300
-------------
961,238
-------------
OIL (DOMESTIC INTEGRATED)--1.1%
USX-Marathon Group.............................. 100,500 3,027,563
-------------
OIL (INTERNATIONAL INTEGRATED)--1.3%
Amoco Corp...................................... 49,400 2,982,525
Conoco, Inc. Class A (b)........................ 30,200 630,425
-------------
3,612,950
-------------
RETAIL (BUILDING SUPPLIES)--1.2%
Home Depot, Inc................................. 53,300 3,261,294
-------------
RETAIL (COMPUTERS & ELECTRONICS)--0.2%
Tandy Corp. (b)................................. 15,800 650,763
-------------
RETAIL (DRUG STORES)--2.5%
CVS Corp........................................ 61,500 3,382,500
Rite Aid Corp................................... 72,200 3,578,413
-------------
6,960,913
-------------
RETAIL (FOOD CHAINS)--2.6%
Meyer (Fred), Inc. (b).......................... 48,770 2,938,393
Safeway, Inc. (b)............................... 72,400 4,411,875
-------------
7,350,268
-------------
RETAIL (GENERAL MERCHANDISE)--0.5%
Wal-Mart Stores, Inc............................ 16,100 1,311,144
-------------
RETAIL (SPECIALTY)--1.1%
Borders Group, Inc. (b)......................... 33,600 837,900
Staples, Inc. (b)............................... 50,650 2,212,772
-------------
3,050,672
-------------
SERVICES (COMMERCIAL & CONSUMER)--0.3%
ServiceMaster Co. (The)......................... 40,000 882,500
-------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--2.1%
AirTouch Communications, Inc. (b)............... 80,800 5,827,700
-------------
TELECOMMUNICATIONS (LONG DISTANCE)--2.0%
AT&T Corp....................................... 33,400 2,513,350
MCI WorldCom, Inc. (b).......................... 41,975 3,011,706
-------------
5,525,056
-------------
</TABLE>
See Notes to Financial Statements
38
<PAGE>
BALANCED SERIES
<TABLE>
<CAPTION>
SHARES VALUE
---------- -------------
TELEPHONE--1.3%
<S> <C> <C> <C>
BellSouth Corp.................................. 41,600 $ 2,074,800
SBC Communications, Inc......................... 28,600 1,533,675
-------------
3,608,475
-------------
WASTE MANAGEMENT--1.0%
Waste Management, Inc........................... 62,000 2,890,750
-------------
TOTAL COMMON STOCKS
(Identified cost $123,662,416).............................. 170,712,012
-------------
FOREIGN COMMON STOCKS--0.5%
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--0.5%
Elan Corp. PLC Sponsored ADR (Ireland) (b)...... 19,300 1,342,546
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,125,896)................................ 1,342,546
-------------
TOTAL LONG-TERM INVESTMENTS--93.9%
(Identified cost $214,872,667).............................. 263,040,395
-------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
-------- -------- -------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--6.1%
COMMERCIAL PAPER--5.4%
Coca-Cola Co. 4.90%, 1/4/99............................... A-1+ $ 2,735 $ 2,733,883
Potomac Electric Power Co. 4.95%, 1/4/99.................. A-1 1,845 1,844,239
SBC Communications Inc. 5.95%, 1/6/99..................... A-1+ 2,485 2,482,946
Corporate Asset Funding Co., Inc. 5.65%, 1/14/99.......... A-1+ 450 449,082
Shell Oil Co. 4.75%, 1/25/99.............................. A-1+ 2,495 2,487,099
Potomac Electric Power 5.50%, 1/26/99..................... A-1 1,930 1,922,629
Vermont American Corp. 4.45%, 1/27/99..................... A-1+ 2,270 2,261,065
Wisconsin Electric Power Co. 5.40%,
1/28/99................................................. A-1+ 915 911,294
-------------
15,092,237
-------------
FEDERAL AGENCY SECURITIES--0.7%
FHLB 4.50%, 1/4/99........................................ 2,025 2,024,241
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $17,116,478)................................................. 17,116,478
-------------
TOTAL INVESTMENTS--100.0%
(Identified cost $231,989,146)................................................ 280,156,873(a)
Cash and receivables, less liabilities--(0.0%)................................ (101,230)
-------------
NET ASSETS--100.0%.............................................................. $ 280,055,643
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $50,810,642 and gross
depreciation of $2,828,720 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$232,174,951.
(b) Non-income producing.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31,
1998, these securities amounted to a value of $9,994,722 or 3.6% of net
assets.
(d) As rated by Moody's, Fitch or Duff & Phelps.
(e) Variable or step coupon security; interest rate shown reflects the rate
currently in effect.
(f) All or a portion segregated as collateral.
See Notes to Financial Statements
39
<PAGE>
BALANCED SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$231,989,146)............................................. $ 280,156,873
Receivables
Interest and dividends.................................... 1,258,856
Investment securities sold................................ 1,168,691
Fund shares sold.......................................... 204,568
Prepaid expenses............................................ 5,008
-------------
Total assets............................................ 282,793,996
-------------
LIABILITIES
Payables
Custodian................................................. 11,312
Investment securities purchased........................... 2,113,929
Fund shares repurchased................................... 368,637
Investment advisory fee................................... 127,253
Financial agent fee....................................... 21,208
Trustees' fee............................................. 5,060
Accrued expenses............................................ 90,954
-------------
Total liabilities....................................... 2,738,353
-------------
NET ASSETS.................................................. $ 280,055,643
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of benefical interest........... $ 229,861,876
Undistributed net investment income....................... 244,131
Accumulated net realized gain............................. 1,781,909
Net unrealized appreciation............................... 48,167,727
-------------
NET ASSETS.................................................. $ 280,055,643
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 20,386,789
-------------
-------------
Net asset value and offering price per share................ $ 13.74
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 7,135,692
Dividends................................................. 1,052,674
Foreign taxes withheld.................................... (3,350)
-------------
Total investment income................................. 8,185,016
-------------
EXPENSES
Investment advisory fee................................... 1,378,437
Financial agent fee....................................... 191,836
Custodian................................................. 45,357
Printing.................................................. 29,325
Professional.............................................. 26,438
Trustees.................................................. 14,329
Miscellaneous............................................. 15,084
-------------
Total expenses.......................................... 1,700,806
-------------
NET INVESTMENT INCOME....................................... 6,484,210
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 1,823,127
Net change in unrealized appreciation (depreciation) on
investments............................................. 36,386,238
-------------
NET GAIN ON INVESTMENTS..................................... 38,209,365
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 44,693,575
-------------
-------------
</TABLE>
See Notes to Financial Statements
40
<PAGE>
BALANCED SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 6,484,210 $ 6,313,137
Net realized gain (loss).................................. 1,823,127 28,928,777
Net change in unrealized appreciation (depreciation)...... 36,386,238 398,108
----------------- -----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 44,693,575 35,640,022
----------------- -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (6,299,939) (6,626,999)
Net realized gains........................................ (9,082,295) (25,653,795)
----------------- -----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (15,382,234) (32,280,794)
----------------- -----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (4,750,917 and 2,522,290
shares, respectively)................................... 60,237,782 32,463,957
Net asset value of shares issued from reinvestment of
distributions
(1,187,415 and 2,611,513 shares, respectively).......... 15,382,234 32,280,794
Cost of shares repurchased (4,412,737 and 3,214,459
shares, respectively)................................... (56,055,533) (41,209,392)
----------------- -----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 19,564,483 23,535,359
----------------- -----------------
NET INCREASE IN NET ASSETS................................ 48,875,824 26,894,587
NET ASSETS
Beginning of period....................................... 231,179,819 204,285,232
----------------- -----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $244,131 AND
$52,552, RESPECTIVELY).................................. $280,055,643 $231,179,819
----------------- -----------------
----------------- -----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 12.26 $ 12.06 $ 12.30 $ 10.53 $ 11.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).......... 0.33 0.38 0.36 0.40(2) 0.38(1)(2)
Net realized and unrealized gain
(loss).............................. 1.94 1.73 0.89 2.02 (0.70)
--------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS.... 2.27 2.11 1.25 2.42 (0.32)
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.............................. (0.32) (0.40) (0.35) (0.40) (0.36)
Dividends from net realized gains..... (0.47) (1.51) (1.14) (0.25) (0.10)
--------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS................. (0.79) (1.91) (1.49) (0.65) (0.46)
--------- --------- --------- --------- ---------
CHANGE IN NET ASSET VALUE............... 1.48 0.20 (0.24) 1.77 (0.78)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD.......... $ 13.74 $ 12.26 $ 12.06 $ 12.30 $ 10.53
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total return............................ 19.01% 17.93% 10.56% 23.28% (2.80)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)... $280,056 $231,180 $204,285 $193,302 $161,105
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses.................... 0.68% 0.71% 0.68% 0.65%(3) 0.69%
Net investment income................. 2.58% 2.92% 2.93% 3.44% 3.44%
Portfolio turnover rate................. 110% 181% 229% 223% 171%
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.001
per share.
(2) Computed using average shares outstanding.
(3) The ratio of operating expenses to average net assets excludes the effect of
expense offsets for custodian fees; if expense offsets were included, the
ratio would not significantly differ.
See Notes to Financial Statements
41
<PAGE>
REAL ESTATE SECURITIES SERIES
INVESTOR PROFILE
The Fund emphasizes capital appreciation and current yield equally. It is
appropriate for investors seeking investment in a diversified portfolio of real
estate investment trusts and real estate operating companies. Investors should
note that real estate investing involves certain risks, including refinancing,
economic impact on the industry, changes in the value of owned properties,
dependency on management skills and risks similar to those linked to small
company investing.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Real Estate Equity Securities
Series provided a return of (21.19)% compared with a return of (17.50)% for the
NAREIT Equity Total Return Index.(1) All performance figures assume reinvestment
of distributions and are net of sales charges.
The year has clearly been disappointing from a stock price performance
perspective. However, growth expectations in funds from operations (FFO)--the
proxy for earnings--that a year ago we indicated should be 9% to 12% per share,
have been met to date. Despite the negative press and broad-brush strokes of
criticism, the bottom-line earnings were delivered overall. In fact, FFO per
share grew by over 12% in the second and third quarters. This compares to flat
to negative earnings growth for the broader market for the same two quarters.
Earnings growth for equity REITs peaked this year as we have moved closer to
equilibrium in the real estate cycle. This was not a surprise, but the level of
erosion of investor confidence in the sector was. Some of the concerns that
surfaced in 1998 were valid, while others were exaggerated and were frequently
used to critique all equity REITs (over 170 companies in 14 sectors). The
concerns included the threats of overbuilding, legislative action, and a
softening economy. They also included legitimate questions about a lack of
demonstrated discipline by some equity REITs in issuing additional common shares
and debt.
More than a few management teams did not recognize when their cost of
capital was greater than the return available in the market for acquisitions,
development or redevelopment. The capital markets ultimately disciplined them
and private developers appropriately. However, discipline was meted out
throughout the sector with very little distinction between offending REITs and
REITs with demonstrated fiscal responsibility.
Larger, more liquid equity REITs underperformed their peers overall this
past year as investors were net sellers. Last year's "growth" REITs, with
significant imbedded internal growth, were nevertheless abandoned by investors
who no longer saw growth and momentum in those names. As we favor visible
earnings, particularly from internal growth, we were overweight in those
companies. We were also overweight in the two sectors that experienced the most
multiple contraction, office and hotels. The office and hotel sectors had the
highest earnings growth per share this year and traded at the deepest discount
to net asset value, but they were also subject to the largest swings on changes
of sentiment or fundamentals. These reasons caused us to underperform our
benchmark for the year.
OUTLOOK
Conservative growth estimates of funds from operations per share range from
5% to 7% in 1999, assuming no external growth, and 7% to 9%, assuming modest
external growth. Equity REIT earnings fundamentals will continue to beat the
broader market, in our opinion. In addition, the dividend payout ratio as a
percentage of cash flow is at its lowest in the history of equity REITs, thus
allowing companies to retain cash flow in capital-constrained times.
Based on this information, we believe the broader market is expensive
relative to REITs. Last year we could not make the claim that real estate was
cheaper on Wall Street than Main Street. This year we can. Whether one is
looking at office or industrial property values per square foot, apartment
values per unit, hotel values per key, health care property values per bed,
discounts to net asset value, or FFO yield versus cap rates, equity REITs are
cheaper today than private market real estate. Given the earnings expectation
for the broader market, combined with its record high multiple and a return to a
rational level of investor sentiment, equity REITs should offer an attractive
alternative to the broader market with continued attractive yields.
(1) The NAREIT (National Association of Real Estate Investment Trusts) Equity
Total Return Index is an unmanaged, commonly used measure of real estate
equity market total return performance. The Index is not available for
direct investment.
42
<PAGE>
REAL ESTATE SECURITIES SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES
SERIES NAREIT*
<S> <C> <C>
05/01/1995 $10,000.00 $10,000.00
12/31/1995 $11,779.19 $11,547.95
12/31/1996 $15,677.21 $15,618.28
12/31/1997 $19,133.73 $18,787.22
12/31/1998 $15,078.60 $15,498.99
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
5/1/95 TO
1 YEAR 12/31/98
<S> <C> <C>
- - ----------------------------------------------------------------------
Real Estate Securities Series (21.19)% 11.84%
- - ----------------------------------------------------------------------
NAREIT Equity Index(*) (17.50)% 12.68%
- - ----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 5/1/95
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate, so that your
shares, when redeemed, may be worth more or less than the original cost.
* The National Association of Real Estate Investment Trusts (NAREIT) Equity
Index is a commonly used, unmanaged indicator of REIT performance.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
COMMON STOCKS--95.5%
REAL ESTATE INVESTMENT TRUSTS--95.1%
COMMERCIAL--39.9%
OFFICE/INDUSTRIAL--37.6%
Alexandria Real Estate Equities, Inc......................... 10,000 $ 309,375
Boston Properties, Inc....................................... 95,500 2,912,750
Duke Realty Investments, Inc................................. 31,600 734,700
Equity Office Properties Trust............................... 34,173 820,152
First Industrial Realty Trust, Inc........................... 52,600 1,410,337
Highwoods Properties, Inc.................................... 59,900 1,542,425
Mack-Cali Realty Corp........................................ 47,200 1,457,300
Reckson Associates Realty Corp............................... 57,200 1,269,125
Spieker Properties, Inc...................................... 68,200 2,361,425
Weeks Corp................................................... 30,500 859,719
---------------
13,677,308
---------------
STORAGE--2.3%
Storage USA, Inc............................................. 25,900 836,894
---------------
TOTAL COMMERCIAL............................................................... 14,514,202
---------------
DIVERSIFIED--13.5%
Colonial Properties Trust.................................... 36,700 977,137
Crescent Real Estate Equities Co............................. 79,900 1,837,700
Vornado Realty Trust......................................... 62,200 2,099,250
---------------
4,914,087
---------------
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
HEALTH CARE--4.5%
Health Care Property Investors, Inc.......................... 5,650 $ 173,738
Nationwide Health Properties, Inc............................ 47,900 1,032,844
OMEGA Healthcare Investors, Inc.............................. 14,000 422,625
---------------
1,629,207
---------------
HOTELS--2.7%
Patriot American Hospitality, Inc............................ 55,800 334,800
Starwood Hotel & Resorts combined certificate................ 29,900 678,356
---------------
1,013,156
---------------
NET LEASE--5.0%
TriNet Corporate Realty Trust, Inc........................... 68,000 1,819,000
---------------
RESIDENTIAL--17.4%
APARTMENTS--13.0%
Avalon Bay Communities, Inc.................................. 33,900 1,161,075
Equity Residential Properties Trust.......................... 65,600 2,652,700
Essex Property Trust, Inc.................................... 30,700 913,325
---------------
4,727,100
---------------
MANUFACTURED HOMES--4.4%
Manufactured Home Communities, Inc........................... 33,800 847,113
Sun Communities, Inc......................................... 21,300 741,506
---------------
1,588,619
---------------
TOTAL RESIDENTIAL.............................................................. 6,315,719
---------------
</TABLE>
See Notes to Financial Statements
43
<PAGE>
REAL ESTATE SECURITIES SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
RETAIL--12.1%
FACTORY OUTLET--3.7%
Chelsea GCA Realty, Inc...................................... 37,600 $ 1,339,500
---------------
REGIONAL MALLS--6.5%
Macerich Co. (The)........................................... 44,300 1,135,188
Simon Property Group, Inc.................................... 17,796 507,186
Urban Shopping Centers, Inc.................................. 21,700 710,675
---------------
2,353,049
---------------
STRIP CENTERS--1.9%
Developers Diversified Realty Corp........................... 40,000 710,000
---------------
TOTAL RETAIL................................................................... 4,402,549
---------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Identified cost $38,306,940)................................................ 34,607,920
---------------
REAL ESTATE OPERATING COMPANIES--0.4%
COMMERCIAL--0.3%
OFFICE/INDUSTRIAL--0.3%
Reckson Services Industries, Inc. (b)........................ 27,456 113,256
---------------
DIVERSIFIED--0.1%
Vornado Operating, Inc. (b).................................. 3,110 25,074
---------------
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
HEALTH CARE--0.0%
OMEGA Worldwide Inc. (b)..................................... 4,641 $ 20,304
---------------
TOTAL REAL ESTATE OPERATING COMPANIES
(Identified cost $111,859)................................................... 158,634
---------------
TOTAL COMMON STOCKS
(Identified cost $38,418,799)................................................ 34,766,554
---------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000)
------------ --------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--3.9%
COMMERCIAL PAPER--3.9%
Coca-Cola Co. 4.90%, 1/14/99......................... A-1+ $ 1,425 1,424,418
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $1,424,418).................................................. 1,424,418
---------------
TOTAL INVESTMENTS--99.4%
(Identified cost $39,843,217)................................................. 36,190,972(a)
Cash and receivables, less liabilities--0.6%.................................. 216,820
---------------
NET ASSETS--100.0%.............................................................. $ 36,407,792
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $1,980,603 and gross
depreciation of $5,632,848 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$39,843,217.
(b) Non-income producing.
See Notes to Financial Statements
44
<PAGE>
REAL ESTATE SECURITIES SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$39,843,217).............................................. $ 36,190,972
Cash........................................................ 56
Receivables
Dividends and interest.................................... 280,315
Fund shares sold.......................................... 20,808
Prepaid expenses............................................ 720
------------
Total assets............................................ 36,492,871
------------
LIABILITIES
Payables
Fund shares repurchased................................... 22,659
Investment advisory fee................................... 2,242
Financial agent fee....................................... 5,109
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 50,009
------------
Total liabilities....................................... 85,079
------------
NET ASSETS.................................................. $ 36,407,792
------------
------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 40,173,537
Accumulated net realized loss............................. (113,500)
Net unrealized depreciation............................... (3,652,245)
------------
NET ASSETS.................................................. $ 36,407,792
------------
------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 2,965,496
------------
------------
Net asset value and offering price per share................ $ 12.28
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 2,301,791
Interest.................................................. 63,275
------------
Total investment income................................. 2,365,066
------------
EXPENSES
Investment advisory fee................................... 350,294
Financial agent fee....................................... 53,733
Printing.................................................. 29,630
Professional.............................................. 17,761
Trustees.................................................. 12,954
Custodian................................................. 4,221
Miscellaneous............................................. 4,227
------------
Total expenses.......................................... 472,820
Less expenses borne by investment adviser............... (5,762)
------------
Net expenses............................................ 467,058
------------
NET INVESTMENT INCOME....................................... 1,898,008
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (109,430)
Net change in unrealized appreciation (depreciation) on
investments............................................. (13,109,206)
------------
NET LOSS ON INVESTMENTS..................................... (13,218,636)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $(11,320,628)
------------
------------
</TABLE>
See Notes to Financial Statements
45
<PAGE>
REAL ESTATE SECURITIES SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 1,898,008 $ 1,402,058
Net realized gain (loss).................................. (109,430) 1,766,075
Net change in unrealized appreciation (depreciation)...... (13,109,206) 5,041,754
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.............................................. (11,320,628) 8,209,887
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (1,978,391) (1,330,417)
Net realized gains........................................ (49,416) (1,843,915)
Tax return of capital..................................... (45,581) --
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (2,073,388) (3,174,332)
-------------- --------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (1,369,232 and 2,796,827
shares, respectively)................................... 20,540,759 42,663,506
Net asset value of shares issued from reinvestment of
distributions (154,542 and 196,112 shares,
respectively)........................................... 2,073,388 3,174,332
Cost of shares repurchased (1,894,769 and 1,242,092
shares, respectively)................................... (27,471,348) (18,924,144)
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE
TRANSACTIONS............................................ (4,857,201) 26,913,694
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS..................... (18,251,217) 31,949,249
NET ASSETS
Beginning of period....................................... 54,659,009 22,709,760
-------------- --------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $0 AND $80,383, RESPECTIVELY)................. $ 36,407,792 $ 54,659,009
-------------- --------------
-------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
YEAR ENDED INCEPTION
DECEMBER 31, 5/1/95 TO
1998 1997 1996 12/31/95
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 16.38 $ 14.32 $ 11.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).......... 0.78(3) 0.50(3) 0.50(3) 0.33(3)
Net realized and unrealized gain
(loss).............................. (4.20) 2.62 3.14 1.42
----------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS.... (3.42) 3.12 3.64 1.75
----------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment
income.............................. (0.65) (0.48) (0.50) (0.33)
Dividends from net realized gains..... (0.02) (0.58) (0.15) (0.06)
Tax return of capital................. (0.01) -- -- (0.03)
----------- --------- --------- ---------
TOTAL DISTRIBUTIONS................. (0.68) (1.06) (0.65) (0.42)
----------- --------- --------- ---------
CHANGE IN NET ASSET VALUE............... (4.10) 2.06 2.99 1.33
----------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD.......... $ 12.28 $ 16.38 $ 14.32 $ 11.33
----------- --------- --------- ---------
----------- --------- --------- ---------
Total return............................ (21.19)% 22.05% 33.09% 17.79%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)... $36,408 $54,659 $22,710 $8,473
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses.................... 1.00% 1.00% 1.00% 1.00%(1)
Net investment income................. 5.07% 3.59% 4.36% 4.80%(1)
Portfolio turnover rate................. 18% 41% 21% 10%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of
$0.002, $0.01, $0.05 and $0.07 per share, respectively.
See Notes to Financial Statements
46
<PAGE>
STRATEGIC THEME SERIES
INVESTOR PROFILE
This Fund is appropriate for investors seeking long-term capital
appreciation. Investors should note that small company investing involves added
risks, including greater price volatility, less liquidity and increased
competitive threat.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 44.69% compared
with 28.76% for the S&P 500 Index.(1) All performance figures assume
reinvestment of distributions and are net of sales charges.
While 1998 turned out to be an excellent year for the U.S. stock market, it
was marked with exceptional volatility. Last year was also marked by large
disparity in returns between asset classes. Small-capitalization stocks
continued to be underperformers, and profitability at many cyclical companies
was under pressure due to weakness in international markets and falling
commodity prices. Recognizing these trends, we made a concerted shift last
spring to focus on large-capitalization stocks with predictable revenue streams
and domestic focus. Overweighting large-capitalization stocks was one of the key
reasons for the outperformance of the Fund.
The other major factor influencing performance was the thematic selection of
the Fund. The theme INTERNET ECONOMY represented a sizable portion of the
portfolio as we believe that the Internet is the next major technology wave that
will affect the way the world works, communicates, shops, and plays. Internet
stocks have been exceptionally powerful over the last year, as well as stocks of
companies that are considered beneficiaries of the Internet. Another important
theme, 21ST CENTURY MEDICINE, has benefited from the remarkable advance of new
drugs like Viagra, implant devices, and non-invasive surgical techniques.
Breakthroughs in health-care are continuing to have important changes in the way
medicine is practiced, enhancing the quality of life.
As a result of the Fed easing, small- and mid-cap stocks have been
performing better. Concurrent with the Fed rate cuts, we began to add to smaller
capitalization stocks in semiconductor, financial, energy, and
telecommunications industries. Primarily our new additions have been niche
companies. We believe that we were able to invest in some great franchises that
were being given away at outstanding values.
OUTLOOK
Our current outlook is for economic growth to be slightly better than
consensus. Recent rises in long-term interest rates and strong economic data
seem to indicate that the Fed's efforts to inject liquidity into the system
through Fed rate cuts in the fall have worked. It is also our expectation that
the financial markets will remain volatile in 1999, as there are still many
cross-currents at work in the global financial systems. We believe that our
timely themes, however, will prove to be resilient in the face of continued
uncertainty.
(1) The S&P 500 Index is an unmanaged, commonly used measure of total return
stock market performance. The Index is not available for direct investment.
47
<PAGE>
STRATEGIC THEME SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STRATEGIC THEME
SERIES S & P MIDCAP 400 INDEX* S & P 500 INDEX**
<S> <C> <C> <C>
1/29/1996 $10,000.00 $10,000.00 $10,000.00
12/31/1996 $11,032.96 $11,959.38 $12,144.20
12/31/1997 $12,926.73 $15,818.21 $16,197.39
12/31/1998 $18,704 $18,841 $20,855
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS
ENDING 12/31/98
FROM
INCEPTION
1/29/96 TO
1 YEAR 12/31/98
<S> <C> <C>
- - ---------------------------------------------------------
Strategic Theme Series 44.69% 23.89%
- - ---------------------------------------------------------
S&P MidCap 400 Index* 19.11% 24.20%
- - ---------------------------------------------------------
S&P 500 Stock Index** 28.76% 28.59%
- - ---------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 1/29/96
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost. Foreign
investing involves special risks such as currency fluctuation and less public
disclosure, as well as economic and political risks.
* The S&P MidCap 400 is an unmanaged index composed of companies with market
capitalizations between $300 million and $5 billion.
** The S&P 500 Index is an unmanaged, commonly used measure of stock total
return performance. The Index is not available for direct investment.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------------- -------------
<S> <C> <C> <C>
COMMON STOCKS--96.2%
BANKS-MONEY CENTER--0.9%
BankAmerica Corp...................................................... 11,239 $ 675,745
-------------
BANKS-SUPER REGIONAL--2.0%
BankBoston Corp....................................................... 17,300 673,619
Firstar Corp.......................................................... 8,700 811,275
-------------
1,484,894
-------------
COMMERCIAL SERVICES-MISCELLANEOUS--0.4%
ServiceMaster Co. (The)............................................... 13,000 286,812
-------------
COMPUTER-LOCAL NETWORKS--4.3%
Cisco Systems, Inc. (b)............................................... 25,700 2,385,281
Newbridge Networks Corp. (b).......................................... 27,300 829,237
-------------
3,214,518
-------------
COMPUTER-MEMORY DEVICES--2.0%
EMC Corp. (b)......................................................... 18,000 1,530,000
-------------
COMPUTER-SERVICES--7.3%
America Online, Inc. (b).............................................. 14,500 2,320,000
At Home Corp. (b)..................................................... 10,000 742,500
Mastech Corp. (b)..................................................... 21,100 603,987
Usweb Corp. (b)....................................................... 34,500 909,937
Yahoo!, Inc. (b)...................................................... 3,900 916,744
-------------
5,493,168
-------------
COMPUTER-SOFTWARE--14.5%
Apple Computer, Inc. (b).............................................. 18,600 761,437
BMC Software, Inc. (b)................................................ 22,200 989,288
Compuware Corp. (b)................................................... 17,000 1,328,125
<CAPTION>
SHARES VALUE
------------- -------------
<S> <C> <C> <C>
COMPUTER-SOFTWARE--CONTINUED
Edwards (J.D.) & Co. (b).............................................. 22,900 $ 649,788
Inktomi Corp. (b)..................................................... 2,700 349,313
International Business Machines Corp.................................. 12,800 2,364,800
Microsoft Corp. (b)................................................... 20,100 2,787,619
Oracle Corp. (b)...................................................... 18,700 806,438
Sapient Corp. (b)..................................................... 14,700 823,200
-------------
10,860,008
-------------
CONSUMER PRODUCTS-MISCELLANEOUS--3.9%
Clorox Co. (The)...................................................... 8,000 934,500
Colgate-Palmolive Co.................................................. 6,800 631,550
Procter & Gamble Co. (The)............................................ 14,500 1,324,031
-------------
2,890,081
-------------
COSMETICS/PERSONAL CARE--1.0%
Gillette Co........................................................... 14,900 719,856
-------------
ELECTRIC-SEMICONDUCTOR EQUIPMENT--4.3%
Cymer, Inc. (b)....................................................... 54,400 795,600
Rambus, Inc........................................................... 8,600 827,750
Uniphase Corp. (b).................................................... 22,800 1,581,750
-------------
3,205,100
-------------
ELECTRIC-SEMICONDUCTOR MANUFACTURING--1.7%
Novellus Systems, Inc. (b)............................................ 25,500 1,262,250
-------------
ELECTRICAL-EQUIPMENT--2.5%
General Electric Co................................................... 18,700 1,908,569
-------------
FINANCE-INVESTMENT BANKERS--0.9%
Merrill Lynch & Co., Inc.............................................. 10,100 674,175
-------------
</TABLE>
48
<PAGE>
STRATEGIC THEME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------------- -------------
<S> <C> <C> <C>
FINANCIAL SERVICES-MISCELLANEOUS--9.4%
American Express Co................................................... 6,100 $ 623,725
Capital One Financial Corp............................................ 10,600 1,219,000
Citigroup, Inc........................................................ 27,100 1,341,450
Equitable Companies, Inc. (The)....................................... 16,100 931,788
Freddie Mac........................................................... 21,500 1,385,406
Morgan Stanley Dean Witter & Co....................................... 8,600 610,600
SunAmerica, Inc....................................................... 12,000 973,500
-------------
7,085,469
-------------
LEISURE-SERVICES--1.2%
Carnival Corp......................................................... 18,000 864,000
-------------
MEDIA-RADIO/TV--2.6%
Clear Channel Communications, Inc. (b)................................ 21,400 1,166,300
Tele-Communications, Inc. Class A (b)................................. 13,700 757,781
-------------
1,924,081
-------------
MEDICAL-BIOMED/GENETICS--0.9%
Chiron Corp. (b)...................................................... 27,000 707,063
-------------
MEDICAL-GENERIC DRUGS--1.2%
Mylan Laboratories, Inc............................................... 29,400 926,100
-------------
MEDICAL-PRODUCTS--11.6%
Becton, Dickinson and Co.............................................. 28,600 1,220,862
Genzyme Corp. (b)..................................................... 20,800 1,034,800
Medtronic, Inc........................................................ 15,600 1,158,300
Pfizer, Inc........................................................... 14,400 1,806,300
Schering-Plough Corp.................................................. 25,200 1,392,300
Warner-Lambert Co..................................................... 15,900 1,195,481
Watson Pharmaceuticals, Inc. (b)...................................... 15,200 955,700
-------------
8,763,743
-------------
MEDICAL-WHOLESALE DRUG/SUNDRY--1.8%
Cardinal Health, Inc.................................................. 18,000 1,365,750
-------------
POLLUTION CONTROL-SERVICES--0.9%
Allied Waste Industries, Inc.......................................... 28,500 673,313
-------------
RETAIL-DEPARTMENT STORES--2.7%
Kohl's Corp. (b)...................................................... 32,700 2,009,006
-------------
RETAIL-DISCOUNT & VARIETY--2.5%
Wal-Mart Stores, Inc.................................................. 23,100 1,881,206
-------------
<CAPTION>
SHARES VALUE
------------- -------------
<S> <C> <C> <C>
RETAIL-MAJOR DISCOUNT CHAINS--1.1%
Costco Companies, Inc. (b)............................................ 11,400 $ 822,938
-------------
RETAIL-SPECIALTY--1.6%
Amazon.com, Inc. (b).................................................. 3,700 1,188,625
-------------
RETAIL-SUPERMARKETS--2.2%
Safeway, Inc. (b)..................................................... 27,500 1,675,781
-------------
RETAIL/WHOLESALE-BUILDING PRODUCTS--2.4%
Home Depot, Inc. (The)................................................ 29,900 1,829,506
-------------
TELECOMMUNICATIONS-EQUIPMENT--0.9%
Tellabs, Inc. (b)..................................................... 10,100 692,481
-------------
TELECOMMUNICATIONS-SERVICES--7.5%
AT&T Corp............................................................. 12,200 918,050
AirTouch Communications, Inc. (b)..................................... 32,600 2,351,275
BellSouth Corp. (b)................................................... 22,800 1,137,150
MCI WorldCom, Inc. (b)................................................ 16,900 1,212,575
-------------
5,619,050
-------------
TOTAL COMMON STOCKS
(Identified cost $57,165,211)........................................................ 72,233,288
-------------
FOREIGN COMMON STOCKS--1.7%
MEDICAL-ETHICAL DRUGS--1.7%
Elan Corp. PLC Sponsored ADR (Ireland) (b)............................ 18,200 1,266,037
-------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,278,008)......................................................... 1,266,037
-------------
TOTAL LONG-TERM INVESTMENTS --97.9%
(Identified cost $58,443,219)........................................................ 73,499,325
-------------
SHORT-TERM OBLIGATIONS--2.8%
FEDERAL AGENCY SECURITIES--2.8%
FHLB 4.50%, 1/4/99%................................................... 2,105 2,104,211
-------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $2,104,211)......................................................... 2,104,211
-------------
TOTAL INVESTMENTS --100.7%
(Identified cost $60,547,430)........................................................ 75,603,536(a)
Cash and receivables, less liabilities--(0.7%)....................................... (505,820)
-------------
NET ASSETS--100.0%..................................................................... $ 75,097,716
-------------
-------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $16,055,847 and gross
depreciation of $1,202,766 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$60,750,455.
(b) Non-income producing.
49
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$60,547,430).............................................. $ 75,603,536
Cash........................................................ 2,131
Receivables
Investment securities sold................................ 1,172,342
Fund shares sold.......................................... 164,418
Interest and dividends.................................... 23,171
Prepaid expenses............................................ 1,283
-------------
Total assets............................................ 76,966,881
-------------
LIABILITIES
Payables
Investment securities purchased........................... 1,759,577
Investment advisory fee................................... 47,509
Financial agent fee....................................... 8,066
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 48,953
-------------
Total liabilities....................................... 1,869,165
-------------
NET ASSETS.................................................. $ 75,097,716
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 55,673,321
Accumulated net realized gain............................. 4,368,289
Net unrealized appreciation............................... 15,056,106
-------------
NET ASSETS.................................................. $ 75,097,716
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 4,876,534
-------------
-------------
Net asset value and offering price per share................ $ 15.40
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 276,875
Dividends................................................. 261,437
Foreign taxes withheld.................................... (90)
-------------
Total investment income................................. 538,222
-------------
EXPENSES
Investment advisory fee................................... 426,848
Financial agent fee....................................... 61,586
Professional.............................................. 15,350
Trustees.................................................. 13,743
Printing.................................................. 12,381
Custodian................................................. 10,881
Miscellaneous............................................. 2,778
-------------
Total expenses.......................................... 543,567
-------------
NET INVESTMENT LOSS......................................... (5,345)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 10,385,680
Net change in unrealized appreciation (depreciation) on
investments............................................. 12,160,802
-------------
NET GAIN ON INVESTMENTS..................................... 22,546,482
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 22,541,137
-------------
-------------
</TABLE>
See Notes to Financial Statements
50
<PAGE>
STRATEGIC THEME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ (5,345) $ 161,027
Net realized gain (loss).................................. 10,385,680 4,293,916
Net change in unrealized appreciation (depreciation)...... 12,160,802 1,374,168
-------------- --------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... 22,541,137 5,829,111
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... -- (161,027)
Net realized gains........................................ (4,406,657) (5,484,196)
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (4,406,657) (5,645,223)
-------------- --------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (1,899,576 and 2,325,529
shares, respectively)................................... 24,310,681 27,902,960
Net asset value of shares issued from reinvestment of
distributions (289,988 and 504,343 shares,
respectively)........................................... 4,406,657 5,645,223
Cost of shares repurchased (1,521,202 and 987,193 shares,
respectively)........................................... (19,373,613) (12,084,569)
-------------- --------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 9,343,725 21,463,614
-------------- --------------
NET INCREASE IN NET ASSETS................................ 27,478,205 21,647,502
NET ASSETS
Beginning of period....................................... 47,619,511 25,972,009
-------------- --------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $0 AND $0, RESPECTIVELY)...................... $ 75,097,716 $ 47,619,511
-------------- --------------
-------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
INCEPTION
YEAR YEAR 1/29/96
ENDED ENDED TO
12/31/98 12/31/97 12/31/96
----------- --------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period......... $ 11.32 $ 10.98 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............... 0.01 0.05(3) 0.04(3)
Net realized and unrealized gain (loss).... 5.03 1.82 0.99
----------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS......... 5.04 1.87 1.03
----------- --------- ---------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.01) (0.05) (0.04)
Dividends from net realized gains.......... (0.95) (1.16) --
In excess of net realized gains............ -- (0.31) --
Tax return of capital...................... -- (0.01) (0.01)
----------- --------- ---------
TOTAL DISTRIBUTIONS...................... (0.96) (1.53) (0.05)
----------- --------- ---------
CHANGE IN NET ASSET VALUE.................... 4.08 0.34 0.98
----------- --------- ---------
NET ASSET VALUE, END OF PERIOD............... $ 15.40 $ 11.32 $ 10.98
----------- --------- ---------
----------- --------- ---------
Total return................................. 44.69% 17.16% 10.33%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........ $75,098 $47,620 $25,972
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses......................... 0.99% 1.00% 1.00%(1)
Net investment income...................... (0.01)% 0.42% 0.64%(1)
Portfolio turnover rate...................... 364% 642% 391%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.02
and $0.02 per share, respectively.
See Notes to Financial Statements
51
<PAGE>
ABERDEEN NEW ASIA SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term capital appreciation
by investing primarily in a diversified portfolio of equity securities in
countries throughout Asia, with the exception of Japan. The Fund essentially
focuses on quality companies with strong management, solid growth prospects and
attractive relative valuations. Investors should note that foreign investments
pose added risks such as currency fluctuation, less public disclosure, as well
as economic and political risks.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned (4.44)%
compared with a return of (5.21)% for the Morgan Stanley Capital International
(MSCI) All Country (AC) Asia Pacific ex Japan Index.(1) All performance figures
assume reinvestment of all distributions and are net of sales charges.
In 1998 it became steadily clear that Asia as a whole was entering a sharp
downward trend after what had been a decade or so of tremendous growth. The
domino effect across the region, which started with Thailand, spread to China
and India. While both escaped the early vicissitudes of the currency crisis due
to the non-convertibility of their currencies, they had limited scope to avoid
the wider economic fallout.
Across the region, attention was focused on the International Monetary Fund
(IMF), whose initial recommendation was primarily aimed at stabilizing
currencies in the crisis hit countries by following tight monetary and fiscal
policies. This led to a severe contraction in output and growing social unrest
in many countries. After being widely criticized for its prescriptions, the IMF
is now stressing the prevention of output contraction and is therefore
recommending a combination of loose monetary and fiscal policies.
Meanwhile, the policy response of governments around the region has been
varied. Korea and Thailand, two of the worst affected economies, have, under
newly elected democratic governments, been following policies set out by the
IMF. The solutions are obvious; i.e., the enforcement of a "clearing" mechanism,
such as an effective bankruptcy law and openness towards overseas capital for
takeovers, etc. The implementation of such "simple" solutions is, however,
impeded by cultural constraints--either unwillingness to break up cozy ties
between business and politics or a touch of xenophobia. Even China, which has
been relatively insulated from the effects of the regional financial crisis, has
moved to strengthen its financial sector. In a landmark move, the government
shut two trust and investment companies, GITIC and GZTIC, that were unable to
pay off their debts.
In contrast, the Malaysian government tried its best to stick its head in
the sand, imposing draconian capital controls. In Taiwan, the government
introduced new securities regulatory measures after the benchmark stock index
tumbled, and set up a NT$200 billion stabilization fund to help prop up the
stock market. And in a surprise move, the Hong Kong government abandoned its
hands off policy as it bought stocks and futures contracts in a defensive move
against speculators.
Over the past few months, exchange rates have stabilized leading to lower
interest rates across Asia. The IMF has declared that the regional economies
have bottomed out and should stage a recovery in late 1999. This has sparked off
a rally in the equity and bond markets. But is this relative steadiness
sustainable? Exchange rate stabilization, which has been partly achieved by
accumulating current account surpluses, in effect came about on the back of
import compression not export growth (exports in most countries have actually
fallen in U.S. dollar terms). In addition the IMF's initial policy mix of tight
monetary and fiscal policy has killed off domestic economic activity. The
priority now is to kick start domestic demand, as Asia can no longer rely on
exports to pull itself out of its mire.
Japan is in no position to absorb Asia's produce, while the U.S. has
predicted its trade deficit to reach a massive US$300 billion in 1999,
re-igniting fears of protectionism. Lower interest rates and higher government
spending alone will not spur growth. What the region needs is to get banks to
lend again. But this will not happen until the capital structures of both banks
and corporations are improved and, encouragingly, governments are taking steps
to recapitalize banks in countries, such as Korea, Japan and Thailand.
Clearing mechanisms are also being put in place. The Korean Asset Management
Company, which buys assets from banks and finance companies, will hold the
country's first asset-backed securities sales; Thailand's Financial Sector
Restructuring Authority's property auction has been well received; the majority
of Malaysian banks have finally cut a deal with regulators to sell their bad
debt; and even in well-managed Singapore, companies are planning to sell off
assets to strengthen their balance sheets. However, across Asia, a lot more
needs to be done--debt needs restructuring and corporations still need to
conduct major refocusing exercises. A good example is Korea, where conglomerates
are still resisting the government's call to downsize their bloated empires. In
addition, mergers and restructurings have not led to the closure of excess
capacity nor
52
<PAGE>
ABERDEEN NEW ASIA SERIES
the laying-off of workers. All this is being postponed as evidenced by news that
Korea Exchange Bank and Cho Hung Bank rehired almost all of their workers.
OUTLOOK
Restructuring and the closure of excess capacity should gradually lay the
foundation for an economic recovery. However, the socio-political aspect needs
to be handled with care. The bulk of the workforce in these crisis-hit
countries, with virtually non-existent safety nets, has never before seen
economic contraction, unemployment and the resulting deterioration in living
standards. Long used to rising incomes and virtually full employment these
people have excused corrupt leadership and cronyism. Indonesia has shown us that
they are not willing to do the same now. The Suharto family's wealth accumulated
through kickbacks, monopolies and preferential treatment is much resented, and
attacks on the minority Chinese are symptomatic of popular frustration at income
inequality. Many of the bankrupt conglomerates, which have all but collapsed the
banking system, are linked to leading government members and the ex-president's
clan. We believe that even a year into the financial crisis, Indonesia remains a
flash point, as ethnic violence continues to rack the nation. But hopefully, the
result of this post-crisis, will be the emergence of effective, transparent and
accountable governance in these countries, which will benefit the high quality
professional companies that survive the donwturn.
We believe that China is another country that holds the key to the region's
stability. Although recent GDP growth figures showed the economy expanding at
7%, below the targeted growth of 8%, anecdotal evidence suggests that the real
economy is slowing at a more alarming pace. It is important for China to grow at
about 8% to be able to absorb the cost of restructuring the state-owned sector
and recapitalize the banking sector. In an attempt to maintain the growth level,
the government has ordered state-owned enterprises and local governments to
increase expenditure to boost demand. The risk is that the spending carried out
will contribute to the structural problems that the government is attempting to
tackle. It has also become apparent that the government's commitment to reform
in the state owned enterprises is wavering. Senior leaders have called for a
more cautious approach to unemployment as well as pushing commercial banks to
resume lending to the moribund state-owned enterprises. But directed lending,
where banks are forced to make commercially non-viable investments, lies at the
heart of the problem banks face. Banking problems in China, and a possible
devaluation of the renminbi, would result in another round of volatility in
regional currencies.
The safest and strongest country in which to invest in, we believe, is
Singapore, where the government has tremendous financial flexibility. The wild
card, in our opinion, is Indonesia, where, if the country survives, amazing
value can be found. We can see little sign that China will look after the
underlying shareholder, and, as for Taiwan, which has some well-run companies,
we think it simply too expensive. In between, one has the whole range--from
India offering solid relatively cheap companies, albeit with a rather stifling
bureaucratic environment, to Korea and Thailand, which have made all the right
political moves but where substance is still somewhat wanting. As stock pickers,
nothing in the environment beats "kicking the tires" and identifying value and
"survivability" at the company level. And, it is at this level, spread broadly
across the region, that we are finding some great value.
What we have seen over recent weeks, however, is a clear sign that there is
light at the end of the tunnel, and we believe that Asian stock markets,
generally, have seen their lows. The economic recovery, however, is unlikely to
be smooth and sharp--and indeed we would say that a sharp recovery would
actually be a bad thing, as it would lead to the postponement of necessary
reforms. Investors, therefore, should be cautiously optimistic.
(1) The Morgan Stanley Capital International (MSCI) All Country (AC) Asia
Pacific ex Japan Index is an unmanaged, commonly used measure of total
return performance for Pacific Basin countries, with the exception of Japan.
The Index is not available for direct investment.
53
<PAGE>
ABERDEEN NEW ASIA SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ABERDEEN NEW ASIA MSCI AC ASIA PACIFIC EX JAPAN
SERIES INDEX*
<S> <C> <C>
9/17/96 $10,000.00 $10,000.00
12/31/96 $10,010.49 $10,456.78
12/31/97 $6,768.08 $6,994.88
12/31/98 $6,467.28 $6,630.69
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
9/17/96 TO
1 YEAR 12/31/98
<S> <C> <C>
- - ------------------------------------------------------------------------
Aberdeen New Asia Series (4.44)% (17.33)%
- - ------------------------------------------------------------------------
MSCI AC Asia Pacific Ex Japan Index* (5.21)% (16.44)%
- - ------------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 9/17/96
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate so that your
shares, when redeemed, may be worth more or less than the original cost.
* Morgan Stanley Capital International All Country Asia Pacific (excluding
Japan) Index is a market-value weighted average of the performance of
securities listed on the stock exchanges of 14 countries in Asia and the
Pacific Basin. Performance is calculated on a total return basis, as reported
by Frank Russell Company.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
FOREIGN COMMON STOCKS--97.5%
AUSTRALIA--17.1%
Australian Gas Light Co., Ltd. (Oil (International Integrated))......................
30,000 $ 216,284
BRL Hardy Ltd. (Beverages (Alcoholic))............................................... 85,000 287,789
Commonwealth Bank of Australia (Banks (Major Regional))..............................
10,000 142,073
Leighton Holdings Ltd. (Engineering & Construction).................................. 50,000 214,676
Pacifica Group Ltd. (Manufacturing (Diversified)).................................... 65,000 183,714
QBE Insurance Group Ltd. (Insurance (Property-Casualty)).............................
85,000 351,916
Telstra Corp. Ltd. (Communications Equipment)........................................ 50,000 233,997
---------------
1,630,449
---------------
HONG KONG--19.1%
CDL Hotels International Ltd. (Lodging-Hotels)....................................... 850,000 218,342
Citybus Group Ltd. (Services (Commercial & Consumer))................................
750,000 156,834
Giordano International Ltd. (Retail (General Merchandise))...........................
1,000,000 187,169
Hongkong Electric Holdings Ltd. (Electric Companies)................................. 95,000 288,175
Johnson Electric Holdings Ltd. (Electronics (Component Distributors))................
80,000 205,498
National Mutual Asia Ltd. (Insurance (Multi-Line))................................... 450,000 336,904
Smartone Telecommunications (Telecommunications (Cellular/Wireless)).................
80,000 222,021
Swire Pacific Ltd. Class B (Diversified Miscellaneous)(b)............................ 300,000 199,432
---------------
1,814,375
---------------
INDIA--8.7%
BSES Ltd. GDR (Diversified Miscellaneous)............................................ 17,000 216,750
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
INDIA--CONTINUED
Industrial Credit & Investment Corporation of India Ltd. Sponsored GDR (Financial
(Diversified))..................................................................... 30,000 $ 199,500
Mahanagar Telephone Nigam Ltd. Sponsored GDR (Telephone).............................
20,000 244,000
Ranbaxy Laboratories Ltd. GDR (Health Care (Drugs-Major Pharmaceuticals))............
18,000 164,700
---------------
824,950
---------------
INDONESIA--3.0%
PT Indosat (Telecommunications (Cellular/Wireless)).................................. 100,000 131,136
PT Indosat ADR (Telecommunications (Cellular/ Wireless)).............................
12,500 153,906
---------------
285,042
---------------
MALAYSIA--5.8%
Carlsberg Brewery Malaysia Berhad (Beverages (Alcoholic))(c).........................
70,000 167,325
Malaysian Oxygen Berhad (Chemicals)(c)............................................... 100,000 157,895
Muhibbah Engineering Berhad (Engineering & Construction)(c)..........................
88,000 24,316
Sime UEP Properties Berhad (Real Estate Development)(c)..............................
250,000 197,368
---------------
546,904
---------------
NEW ZEALAND--2.7%
Telecom Corporation of New Zealand Ltd. (Telecommunications (Cellular/Wireless)).....
60,000 261,487
---------------
PHILIPPINES--9.4%
Ayala Land, Inc. (Real Estate Development)........................................... 900,000 254,506
Bank of The Philippine Islands (Banks (Major Regional)).............................. 90,000 190,880
</TABLE>
See Notes to Financial Statements
54
<PAGE>
ABERDEEN NEW ASIA SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
PHILIPPINES--CONTINUED
La Tondena Distillers, Inc. (Beverages (Alcoholic)).................................. 175,000 $ 139,464
Philippine Long Distance Telephone Co. Sponsored ADR (Telephone).....................
12,000 311,250
---------------
896,100
---------------
SINGAPORE--14.8%
Chemical Industries (Far East) Ltd. (Chemicals)...................................... 100,000 103,033
Clipsal Industries (Holdings) Ltd. (Electrical Equipment)............................ 175,000 175,000
Robinson & Co. Ltd. (Retail (Department Stores))..................................... 80,000 179,398
Rothmans Industries Ltd. (Tobacco)................................................... 75,000 450,011
Singapore Press Holdings Ltd. (Publishing (Newspapers))..............................
25,600 279,279
United Overseas Bank Ltd. (Banks (Money Center))..................................... 35,000 224,854
---------------
1,411,575
---------------
SOUTH KOREA--3.4%
Pohang Iron & Steel Co. Ltd. (Iron & Steel).......................................... 5,000 319,157
---------------
SRI LANKA--2.8%
John Keells Holdings Ltd. (Diversified Miscellaneous)(b)............................. 35,000 114,062
National Development Bank Ltd. (Banks (Major Regional))(b)...........................
79,000 147,776
---------------
261,838
---------------
TAIWAN--2.5%
Standard Foods Taiwan Ltd. GDR (Foods)(b)............................................ 25,000 240,625
---------------
THAILAND--3.5%
Phatra Insurance Public Company, Ltd. Foreign (Insurance (Multi-Line))...............
71,600 167,502
Ruam Pattana Fund II (Financial (Diversified))(b).................................... 1,250,000 165,135
---------------
332,637
---------------
UNITED KINGDOM--4.7%
HSBC Holdings PLC (Banks (Money Center))............................................. 10,000 271,201
Rowe Evans Investments Group PLC (Agricultural Products).............................
200,000 178,028
---------------
449,229
---------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $11,305,888)....................................................................... 9,274,368
---------------
<CAPTION>
SHARES VALUE
------------- ---------------
<S> <C> <C> <C>
RIGHTS--0.2%
MALAYSIA--0.2%
Muhibbah Engineering Berhad Rights (Engineering &
Construction)(b)(c)................................................................ 225,000 $ 12,829
---------------
TOTAL RIGHTS
(Identified cost $68,335)........................................................................... 12,829
---------------
TOTAL LONG-TERM INVESTMENTS--97.7%
(Identified cost $11,374,223)....................................................................... 9,287,197
---------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000)
-------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--2.1%
REPURCHASE AGREEMENT--2.1%
Credit Suisse repurchase agreement, 4.75%, dated 12/31/98 due 1/4/99, repurchase
price $204,104, collateralized by U.S. Treasury Note 5.50%, 4/15/00, market value
$202,188............................................................................. $ 200 200,000
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $200,000).......................................................................... 200,000
---------------
TOTAL INVESTMENTS--99.8%
(Identified cost $11,574,223)....................................................................... 9,487,197(a)
Cash and receivables, less liabilities--0.2%........................................................ 23,243
---------------
NET ASSETS--100.0%.................................................................................... $ 9,510,440
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $992,718 and gross
depreciation of $3,114,197 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purpose was
$11,608,676.
(b) Non-income producing.
(c) Security valued at fair value as determined in good faith by or under the
direction of the Trustees.
See Notes to Financial Statements
55
<PAGE>
ABERDEEN NEW ASIA SERIES
INDUSTRY DIVERSIFICATION
AS A PERCENTAGE OF TOTAL VALUE OF
TOTAL LONG-TERM INVESTMENTS
(UNAUDITED)
<TABLE>
<S> <C>
Agricultural Products.............................. 1.9%
Banks (Major Regional)............................. 5.2
Banks (Money Center)............................... 5.3
Beverages (Alcoholic).............................. 6.4
Chemicals.......................................... 2.8
Communications Equipment........................... 2.5
Diversified Miscellaneous.......................... 5.7
Electric Companies................................. 3.1
Electrical Equipment............................... 1.9
Electronics (Component Distributors)............... 2.2
Engineering & Construction......................... 2.7
Financial (Diversified)............................ 3.9
Foods.............................................. 2.6
Health Care (Drugs-Major Pharmaceuticals).......... 1.8
Insurance (Multi-Line)............................. 5.4
Insurance (Property-Casualty)...................... 3.8
Iron & Steel....................................... 3.4
Lodging-Hotels..................................... 2.4
Manufacturing (Diversified)........................ 2.0
Oil (International Integrated)..................... 2.3
Publishing (Newspapers)............................ 3.0
Real Estate Development............................ 4.9
Retail (Department Stores)......................... 1.9
Retail (General Merchandise)....................... 2.0
Services (Commercial & Consumer)................... 1.7
Telecommunications (Cellular/Wireless)............. 8.3
Telephone.......................................... 6.0
Tobacco............................................ 4.9
------
100.0%
------
------
</TABLE>
See Notes to Financial Statements
56
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$11,574,223).............................................. $ 9,487,197
Cash........................................................ 30,157
Foreign currency at value (Identified cost $48)............. 44
Receivables
Investment securities sold................................ 86,167
Dividends and interest.................................... 24,633
Fund shares sold.......................................... 2,619
Tax reclaim............................................... 104
Prepaid expenses............................................ 192
-------------
Total assets............................................ 9,631,113
-------------
LIABILITIES
Payables
Fund shares repurchased................................... 21,240
Investment advisory fee................................... 11,914
Trustees' fee............................................. 7,155
Financial agent fee....................................... 3,642
Accrued expenses.......................................... 76,722
-------------
Total liabilities....................................... 120,673
-------------
NET ASSETS.................................................. $ 9,510,440
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 14,914,668
Undistributed net investment income....................... 94,548
Accumulated net realized loss............................. (3,411,454)
Net unrealized depreciation............................... (2,087,322)
-------------
NET ASSETS.................................................. $ 9,510,440
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 1,552,096
-------------
-------------
Net asset value and offering price per share................ $ 6.13
-----
-----
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 274,732
Interest.................................................. 46,532
Foreign taxes withheld.................................... (8,630)
-------------
Total investment income................................. 312,634
-------------
EXPENSES
Investment advisory fee................................... 93,715
Financial agent fee....................................... 27,570
Custodian................................................. 37,445
Professional.............................................. 29,874
Printing.................................................. 22,344
Trustees.................................................. 19,179
Miscellaneous............................................. 3,657
-------------
Total expenses.......................................... 233,784
Less expenses borne by investment adviser............... (117,074)
-------------
Net expenses............................................ 116,710
-------------
NET INVESTMENT INCOME....................................... 195,924
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (2,782,700)
Net realized loss on foreign currency transactions........ (16,142)
Net change in unrealized appreciation (depreciation) on
investments............................................. 2,312,994
Net change in unrealized appreciation (depreciation) on
foreign currency and foreign currency transactions...... 4,137
-------------
NET LOSS ON INVESTMENTS..................................... (481,711)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (285,787)
-------------
-------------
</TABLE>
See Notes to Financial Statements
57
<PAGE>
ABERDEEN NEW ASIA SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 195,924 $ 211,171
Net realized gain (loss).................................. (2,798,842) (526,096)
Net change in unrealized appreciation (depreciation)...... 2,317,131 (4,381,851)
------------------ -----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS...... (285,787) (4,696,776)
------------------ -----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (36,125) (211,171)
Net realized gain......................................... -- (6,760)
In excess of net investment income........................ (4,147) (143,676)
Tax return of capital..................................... -- (76,927)
------------------ -----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (40,272) (438,534)
------------------ -----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (2,726,957 and 1,188,914
shares, respectively)................................... 16,221,934 10,623,009
Net asset value of shares issued from reinvestment of
distributions (6,603 and 66,703 shares, respectively)... 40,272 438,534
Cost of shares repurchased (2,736,922 and 862,809 shares,
respectively)........................................... (16,442,409) (7,494,737)
------------------ -----------------
INCREASE (DECREASE) IN NET ASSETS FROM SHARE
TRANSACTIONS............................................ (180,203) 3,566,806
------------------ -----------------
NET DECREASE IN NET ASSETS................................ (506,262) (1,568,504)
NET ASSETS
Beginning of period....................................... 10,016,702 11,585,206
------------------ -----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME AND DISTRIBUTIONS IN EXCESS OF NET INVESTMENT
INCOME OF $94,548 AND ($159,799), RESPECTIVELY)......... $ 9,510,440 $10,016,702
------------------ -----------------
------------------ -----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM INCEPTION
YEAR ENDED YEAR ENDED 9/17/96 TO
12/31/98 12/31/97 12/31/96
----------- ---------- --------------
<S> <C> <C> <C>
Net asset value, beginning of period......... $ 6.44 $ 9.96 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............... 0.13(1)(4) 0.15(1) 0.05(1)
Net realized and unrealized gain (loss).... (0.41) (3.36) (0.04)
----------- ---------- -------
TOTAL FROM INVESTMENT OPERATIONS......... (0.28) (3.21) 0.01
----------- ---------- -------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.03) (0.15) (0.05)
Dividends from net realized gains.......... -- (0.01) --
In excess of net investment income......... -- (0.10) --
Tax return of capital...................... -- (0.05) --
----------- ---------- -------
TOTAL DISTRIBUTIONS...................... (0.03) (0.31) (0.05)
----------- ---------- -------
CHANGE IN NET ASSET VALUE.................... (0.31) (3.52) (0.04)
----------- ---------- -------
NET ASSET VALUE, END OF PERIOD............... $ 6.13 $ 6.44 $ 9.96
----------- ---------- -------
----------- ---------- -------
Total return................................. (4.44)% (32.39)% 0.16%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........ $9,510 $10,017 $11,585
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses......................... 1.25% 1.25% 1.25%(2)
Net investment income...................... 2.09% 1.63% 2.40%(2)
Portfolio turnover rate...................... 46% 27% 2%(3)
</TABLE>
(1) Includes reimbursement of operating expenses by investment adviser of $0.08,
$0.07 and $0.03 per share, respectively.
(2) Annualized.
(3) Not annualized.
(4) Computed using average shares outstanding.
See Notes to Financial Statements
58
<PAGE>
RESEARCH ENHANCED INDEX SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term capital
appreciation.
INVESTMENT ADVISER'S REPORT
For the 12 months ended December 31, 1998, the Fund returned 31.68% compared
with a return of 28.76% for the S&P 500 Index.(1) All performance figures assume
reinvestment of distributions and are net of sales charges.
The U.S. stock market ended a very volatile year in a rally driven by size
and growth. U.S. stocks staged an impressive rise during the fourth quarter,
driving results for the full year and extending the S&P 500 Index's streak of
20% plus returns to an unprecedented four years. Liquidity flooded financial
markets as the Federal Reserve cut interest rates three times in the space of
seven weeks in September, October and November. As such, early fourth-quarter
stock market advances were fairly broad based. However, gains that elevated the
S&P 500 became increasingly more narrow as analysts lowered earnings
expectations and as interest rates stagnated.
While 1998 was difficult for most active managers, stock selection and risk
control were the main contributors to the Fund's outperformance. In particular,
the Fund's holding in drug stock WARNER LAMBERT benefited as sales of its
cholesterol-reducing drug Lipitor surpassed the $1 billion mark. Favorable stock
selection in the consumer cyclical and telephone sectors also enhanced
performance. The Fund's overweight position in WORLDCOM enhanced returns on news
of an approved merger with MCI. In the latter part of the year, our decision to
underweight money center banks and brokerage stocks within the finance sector
had a positive impact on the Fund's performance. Stocks in these sectors traded
sharply lower due to the financial and economic meltdown in emerging markets,
the declining U.S. stock market and the large potential losses from exposure to
the hedge fund Long-Term Capital Management. Conversely, the Fund's holding in
MONSANTO held back performance in the last quarter as the company announced its
decision to end merger talks with AMERICAN HOME PRODUCTS. MONSANTO will now be
forced to issue equity, since its balance sheet has been weakened by $8 billion
dollars of seed acquisitions.
OUTLOOK
For 1999, we expect moderation with respect to earnings, economic growth and
share price appreciation. Positive seasonal trends and monetary conditions
should support the market as we enter the new year. However, any one of a
plethora of macro uncertainties has the potential to deflect stocks from
extending their recent gains: the impact of the euro, the year 2000 problem or
further international financial turmoil or international hostilities.
INVESTMENT REVIEW
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
RESEARCH ENHANCED INDEX SERIES S&P 500 INDEX(1)
<S> <C> <C>
07/15/1997 $10,000.00 $10,000.00
12/31/1997 $10,582.49 $10,566.54
12/31/1998 $13,934.65 $13,605.10
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDING 12/31/98
FROM
INCEPTION
7/15/97 TO
1 YEAR 12/31/98
<S> <C> <C>
- - -----------------------------------------------------------------------
Research Enhanced Index Series 31.68% 25.40%
- - -----------------------------------------------------------------------
S&P 500 Index(1) 28.76% 23.42%
- - -----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 7/15/97
(inception of the Fund). Returns shown include the reinvestment of all
distributions at net asset value, and the change in share price for the stated
period. Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate so that your
shares when redeemed, may be worth more or less than the original cost.
(1)The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The index is not available for direct investment.
59
<PAGE>
RESEARCH ENHANCED INDEX SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ----- --------
<S> <C> <C> <C>
U.S. GOVERNMENT SECURITIES--0.2%
U.S. TREASURY NOTES--0.2%
U.S. Treasury Notes 5.875%, 11/15/99 (c)........ AAA $ 30 $ 30,314
U.S. Treasury Notes 6%, 6/30/99 (c)............. AAA 80 80,581
--------
110,895
--------
TOTAL U.S. GOVERNMENT SECURITIES
(Identified cost $110,655).......................................... 110,895
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES
-------
<S> <C> <C> <C>
COMMON STOCKS--94.7%
AEROSPACE/DEFENSE--0.4%
Boeing Co. (The).......................................... 7,400 241,425
Coltec Industries, Inc. (b)............................... 1,200 23,400
Precision Castparts Corp.................................. 100 4,425
------------
269,250
------------
AGRICULTURAL PRODUCTS--0.1%
Pioneer Hi-Bred International, Inc........................ 2,100 56,700
------------
AIRLINES--0.2%
AMR Corp. (b)............................................. 1,600 95,000
Delta Air Lines, Inc...................................... 1,200 62,400
------------
157,400
------------
ALUMINUM--0.4%
Aluminum Company of America............................... 2,600 193,862
Reynolds Metals Co........................................ 1,000 52,687
------------
246,549
------------
AUTO PARTS & EQUIPMENT--0.6%
Cooper Tire & Rubber Co................................... 900 18,394
Dana Corp................................................. 2,700 110,362
Genuine Parts Co. (b)..................................... 3,000 100,312
Goodyear Tire & Rubber Co. (The).......................... 2,600 131,137
Lear Corp. (b)............................................ 1,300 50,050
------------
410,255
------------
AUTOMOBILES--1.0%
Ford Motor Co............................................. 4,700 275,831
General Motors Corp....................................... 4,400 314,875
General Motors Corp. Class H.............................. 3,000 119,062
------------
709,768
------------
BANKS (MAJOR REGIONAL)--4.5%
Associated Banc-Corp...................................... 500 17,094
Bank One Corp............................................. 8,500 434,031
BankBoston Corp........................................... 2,500 97,344
Charter One Financial, Inc................................ 1,300 36,075
Colonial BancGroup, Inc. (The)............................ 600 7,200
Compass Bancshares, Inc................................... 600 22,837
Crestar Financial Corp.................................... 2,400 172,800
First American Corp....................................... 800 35,500
First Union Corp.......................................... 8,500 516,906
First Virginia Banks, Inc................................. 400 18,800
Fleet Financial Group, Inc................................ 1,600 71,500
Glendale Federal Bank..................................... 1,000 16,625
Hibernia Corp. Class A.................................... 1,300 22,587
Huntington Bancshares, Inc................................ 1,200 36,075
KeyCorp................................................... 3,800 121,600
M & T Bank Corp........................................... 100 51,894
Marshall & Ilsley Corp.................................... 1,200 70,125
Mellon Bank Corp.......................................... 1,900 130,625
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
BANKS (MAJOR REGIONAL)--CONTINUED
Mercantile Bancorporation, Inc............................ 1,300 $ 59,962
North Fork Bancorporation, Inc............................ 1,200 28,725
PNC Bank Corp............................................. 2,400 129,900
Pacific Century Financial Corp............................ 700 17,062
Regions Financial Corp.................................... 1,500 60,469
Republic New York Corp.................................... 900 41,006
SouthTrust Corp........................................... 1,900 70,181
Sovereign Bancorp, Inc.................................... 2,600 37,050
U.S. Bancorp.............................................. 6,100 216,550
Union Planters Corp....................................... 1,200 54,375
Wells Fargo & Co.......................................... 13,500 539,156
Wilmington Trust Corp..................................... 200 12,325
------------
3,146,379
------------
BANKS (MONEY CENTER)--2.1%
BankAmerica Corp.......................................... 14,900 895,862
Bankers Trust Corp........................................ 800 68,350
Chase Manhattan Corp. (The)............................... 6,900 469,631
------------
1,433,843
------------
BEVERAGES (ALCOHOLIC)--0.1%
Anheuser-Busch Companies, Inc............................. 1,100 72,187
------------
BEVERAGES (NON-ALCOHOLIC)--2.3%
Coca-Cola Co. (The)....................................... 15,700 1,049,937
PepsiCo, Inc.............................................. 13,900 569,031
------------
1,618,968
------------
BIOTECHNOLOGY--0.5%
Amgen, Inc. (b)........................................... 3,300 345,056
------------
BROADCASTING (TELEVISION, RADIO & CABLE)--1.4%
Comcast Corp. Special Class A............................. 6,300 369,731
Tele-Communications, Inc. Class A (b)..................... 3,600 199,125
Time Warner, Inc.......................................... 6,900 428,231
------------
997,087
------------
BUILDING MATERIALS--0.0%
Owens Corning............................................. 900 31,894
------------
CHEMICALS--1.3%
Dow Chemical Co. (The).................................... 3,400 309,187
Du Pont (E.I.) de Nemours & Co............................ 7,700 408,581
Praxair, Inc.............................................. 1,800 63,450
Rohm & Haas Co............................................ 3,100 93,387
Union Carbide Corp........................................ 1,200 51,000
------------
925,605
------------
CHEMICALS (DIVERSIFIED)--0.6%
Lyondell Chemical Co...................................... 800 14,400
Monsanto Co............................................... 7,800 370,500
------------
384,900
------------
CHEMICALS (SPECIALTY)--0.1%
Crompton & Knowles Corp................................... 500 10,344
Cytec Industries, Inc. (b)................................ 300 6,375
IMC Global, Inc........................................... 500 10,687
Solutia, Inc.............................................. 1,600 35,800
USEC, Inc................................................. 1,100 15,262
------------
78,468
------------
COMMUNICATIONS EQUIPMENT--2.4%
Lucent Technologies, Inc.................................. 11,900 1,309,000
Motorola, Inc............................................. 5,800 354,162
------------
1,663,162
------------
</TABLE>
See Notes to Financial Statements
60
<PAGE>
RESEARCH ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
COMPUTERS (HARDWARE)--4.2%
Compaq Computer Corp...................................... 16,700 $ 700,356
Dell Computer Corp. (b)................................... 3,600 263,475
Hewlett-Packard Co........................................ 1,800 122,962
International Business Machines Corp...................... 8,100 1,496,475
Sun Microsystems, Inc. (b)................................ 3,700 316,812
------------
2,900,080
------------
COMPUTERS (NETWORKING)--2.2%
3Com Corp. (b)............................................ 4,700 210,619
Cisco Systems, Inc. (b)................................... 14,300 1,327,219
------------
1,537,838
------------
COMPUTERS (PERIPHERALS)--0.7%
EMC Corp. (b)............................................. 4,900 416,500
Seagate Technology, Inc. (b).............................. 2,400 72,600
------------
489,100
------------
COMPUTERS (SOFTWARE & SERVICES)--5.3%
America Online, Inc. (b).................................. 4,200 672,000
Autodesk, Inc............................................. 400 17,075
BMC Software, Inc. (b).................................... 2,100 93,581
Computer Associates International, Inc.................... 5,200 221,650
Electronic Arts, Inc. (b)................................. 500 28,062
Microsoft Corp. (b)....................................... 15,500 2,149,656
Network Associates, Inc. (b).............................. 1,100 72,875
Oracle Corp. (b).......................................... 8,300 357,937
Parametric Technology Corp. (b)........................... 2,100 34,387
PeopleSoft, Inc. (b)...................................... 2,300 43,556
Symantec Corp. (b)........................................ 400 8,700
------------
3,699,479
------------
CONSUMER FINANCE--0.3%
Capital One Financial Corp................................ 500 57,500
Household International, Inc.............................. 4,200 166,425
Provident Financial Group, Inc............................ 300 11,325
------------
235,250
------------
CONTAINERS & PACKAGING (PAPER)--0.2%
Smurfit-Stone Container Corp. (b)......................... 3,900 61,669
Temple-Inland, Inc........................................ 700 41,519
Union Camp Corp........................................... 900 60,750
------------
163,938
------------
ELECTRIC COMPANIES--2.3%
Allegheny Energy, Inc..................................... 1,300 44,850
Baltimore Gas & Electric Co............................... 1,700 52,487
CMS Energy Corp........................................... 1,200 58,125
Central & South West Corp................................. 6,200 170,112
Cinergy Corp.............................................. 1,700 58,437
Duke Energy Corp.......................................... 1,400 89,687
Edison International...................................... 4,100 114,287
Entergy Corp.............................................. 2,800 87,150
FPL Group, Inc............................................ 500 30,812
GPU, Inc.................................................. 1,400 61,862
Illinova Corp............................................. 700 17,500
NIPSCO Industries, Inc.................................... 600 18,262
New England Electric System............................... 700 33,687
Niagara Mohawk Power Corp. (b)............................ 1,900 30,637
Northeast Utilities (b)................................... 1,400 22,400
Northern States Power Co.................................. 1,700 47,175
PG&E Corp................................................. 4,200 132,300
PP&L Resources, Inc....................................... 1,800 50,175
Pinnacle West Capital Corp................................ 900 38,137
Potomac Electric Power Co................................. 1,000 26,312
Southern Co. (The)........................................ 3,500 101,719
TECO Energy, Inc.......................................... 1,400 39,462
Texas Utilities Co........................................ 3,000 140,062
Union Electric Co......................................... 1,500 64,031
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
ELECTRIC COMPANIES--CONTINUED
Wisconsin Energy Corp..................................... 1,300 $ 40,869
------------
1,570,537
------------
ELECTRICAL EQUIPMENT--2.9%
Emerson Electric Co....................................... 500 31,281
General Electric Co....................................... 18,500 1,888,156
Rockwell International Corp............................... 2,600 126,262
------------
2,045,699
------------
ELECTRONICS (COMPONENT DISTRIBUTORS)--0.1%
Grainger (W.W.), Inc...................................... 1,400 58,275
------------
ELECTRONICS (DEFENSE)--0.4%
Raytheon Co., Class A..................................... 5,300 273,944
------------
ELECTRONICS (INSTRUMENTATION)--0.2%
Parker-Hannifin Corp...................................... 1,500 49,125
Perkin-Elmer Corp. (The).................................. 600 58,537
Sensormatic Electronics Corp.............................. 800 5,550
------------
113,212
------------
ELECTRONICS (SEMICONDUCTORS)--3.0%
Intel Corp................................................ 14,100 1,671,731
National Semiconductor Corp............................... 1,600 21,600
Texas Instruments, Inc.................................... 3,800 325,137
Xilinx, Inc. (b).......................................... 700 45,587
------------
2,064,055
------------
ENGINEERING & CONSTRUCTION--0.0%
Foster Wheeler Corp....................................... 200 2,637
------------
ENTERTAINMENT--0.1%
Walt Disney Co. (The)..................................... 3,200 96,000
------------
FINANCIAL (DIVERSIFIED)--4.3%
AMRESCO, Inc. (b)......................................... 200 1,750
American Express Co....................................... 3,800 388,550
Associates First Capital Corp............................. 5,600 237,300
Bear Stearns Companies, Inc. (The)........................ 900 33,637
CIT Group, Inc. (The)..................................... 800 25,450
Citigroup, Inc............................................ 19,600 970,200
FINOVA Group, Inc. (The).................................. 500 26,969
Fannie Mae................................................ 7,200 536,079
Greenpoint Financial Corp................................. 800 28,100
Lehman Brothers Holdings, Inc............................. 1,200 52,875
MBIA, Inc................................................. 1,200 78,675
Morgan Stanley, Dean Witter & Co. (b)..................... 5,000 355,000
National Commerce Bancorporation.......................... 1,900 35,744
TCF Financial Corp........................................ 700 16,931
Tele-Communications TCI Ventures Group Class A (b)........ 7,000 164,937
Waddell & Reed Financial, Inc. Class A.................... 100 2,369
------------
2,954,566
------------
FOODS--1.3%
Bestfoods................................................. 2,700 143,775
Campbell Soup Co.......................................... 4,000 220,000
Corn Products International, Inc.......................... 100 3,037
General Mills, Inc........................................ 1,400 108,850
Hershey Foods Corp........................................ 1,300 80,844
Nabisco Holdings Corp..................................... 400 16,600
Ralston-Ralston Purina Group.............................. 2,900 93,887
Sara Lee Corp............................................. 8,200 231,137
------------
898,130
------------
FOOTWEAR--0.2%
Nike, Inc. Class B........................................ 2,900 117,631
Nine West Group, Inc. (b)................................. 100 1,556
Reebok International Ltd.................................. 700 10,413
------------
129,600
------------
</TABLE>
See Notes to Financial Statements
61
<PAGE>
RESEARCH ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
GAMING, LOTTERY & PARIMUTUEL COMPANIES--0.2%
Circus Circus Enterprises, Inc. (b)....................... 1,000 $ 11,438
International Game Technology............................. 1,700 41,331
MGM Grand, Inc. (b)....................................... 300 8,138
Mirage Resorts Inc. (b)................................... 3,200 47,800
------------
108,707
------------
HEALTH CARE (DIVERSIFIED)--5.7%
Abbott Laboratories....................................... 8,300 406,700
American Home Products Corp............................... 15,100 850,319
Bristol-Myers Squibb Co. (b).............................. 9,300 1,244,456
Johnson & Johnson......................................... 9,300 780,038
Warner-Lambert Co......................................... 8,700 654,131
------------
3,935,644
------------
HEALTH CARE (DRUGS - MAJOR PHARMACEUTICALS)--3.7%
Agouron Pharmaceuticals, Inc. (b)......................... 100 5,875
Biogen, Inc. (b).......................................... 900 74,700
Chiron Corp. (b).......................................... 2,200 57,613
Forest Laboratories, Inc. (b)............................. 1,000 53,188
Immunex Corp. (b)......................................... 500 62,906
Lilly (Eli) & Co.......................................... 5,300 471,038
MedImmune, Inc. (b)....................................... 300 29,831
Merck & Co., Inc.......................................... 5,600 827,050
Pfizer, Inc............................................... 5,700 714,994
Schering-Plough Corp...................................... 3,800 209,950
Watson Pharmaceuticals, Inc. (b).......................... 1,100 69,163
------------
2,576,308
------------
HEALTH CARE (HOSPITAL MANAGEMENT)--0.5%
Columbia/HCA Healthcare Corp.............................. 7,200 178,200
Health Management Associates, Inc. Class A (b)............ 2,900 62,713
Tenet Healthcare Corp. (b)................................ 3,700 97,125
------------
338,038
------------
HEALTH CARE (MANAGED CARE)--0.3%
Health Care & Retirement Corp............................. 1,400 41,125
Humana, Inc. (b).......................................... 2,500 44,531
United Healthcare Corp.................................... 2,300 99,044
Wellpoint Health Networks, Inc. (b)....................... 200 17,400
------------
202,100
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--0.7%
Bausch & Lomb, Inc........................................ 800 48,000
Baxter International, Inc. (b)............................ 600 38,588
Boston Scientific Corp. (b)............................... 4,500 120,656
Genzyme Corp. (b)......................................... 1,000 49,750
Medtronic, Inc............................................ 2,600 193,050
Stryker Corp.............................................. 600 33,038
------------
483,082
------------
HEALTH CARE (SPECIALIZED SERVICES)--0.2%
ALZA Corp. (b)............................................ 1,100 57,475
HEALTHSOUTH Corp. (b)..................................... 4,400 67,925
------------
125,400
------------
HOUSEHOLD FURNITURE & APPLIANCES--0.2%
Furniture Brands International, Inc. (b).................. 600 16,350
Leggett & Platt, Inc...................................... 3,200 70,400
Whirlpool Corp............................................ 1,300 71,988
------------
158,738
------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--2.1%
Colgate-Palmolive Co...................................... 1,800 167,175
Kimberly-Clark Corp....................................... 5,200 283,400
Procter & Gamble Co. (The) (b)............................ 10,900 995,306
------------
1,445,881
------------
INSURANCE (LIFE/HEALTH)--0.7%
Aetna, Inc................................................ 1,800 141,525
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
INSURANCE (LIFE/HEALTH)--CONTINUED
Equitable Companies, Inc. (The)........................... 1,500 $ 86,813
Torchmark Corp............................................ 1,000 35,313
Transamerica Corp......................................... 800 92,400
UNUM Corp................................................. 1,700 99,238
------------
455,289
------------
INSURANCE (MULTI-LINE)--1.3%
Ambac Financial Group, Inc................................ 900 54,169
American International Group, Inc......................... 8,700 840,638
Financial Security Assurance Holdings Ltd................. 300 16,275
PMI Group, Inc. (The)..................................... 300 14,813
------------
925,895
------------
INSURANCE (PROPERTY-CASUALTY)--1.0%
Allstate Corp............................................. 9,800 378,525
Chubb Corp. (The)......................................... 1,500 97,313
Fremont General Corp...................................... 800 19,800
Mercury General Corp...................................... 600 26,288
Ohio Casualty Corp........................................ 200 8,225
SAFECO Corp............................................... 1,600 68,700
St. Paul Companies, Inc. (The)............................ 2,900 100,775
Travelers Property Casualty Corp. Class A................. 800 24,800
------------
724,426
------------
INSURANCE BROKERS--0.4%
Aon Corp.................................................. 1,800 99,675
Marsh & McLennan Companies, Inc........................... 3,100 181,156
------------
280,831
------------
INVESTMENT BANKING/BROKERAGE--0.3%
Merrill Lynch & Co., Inc.................................. 2,900 193,575
Paine Webber Group, Inc................................... 1,200 46,350
------------
239,925
------------
IRON & STEEL--0.1%
Allegheny Teledyne, Inc................................... 3,500 71,531
------------
LEISURE TIME (PRODUCTS)--0.3%
Hasbro, Inc............................................... 2,700 97,538
Mattel, Inc............................................... 5,700 130,031
------------
227,569
------------
LODGING-HOTELS--0.1%
Extended Stay America, Inc. (b)........................... 500 5,250
Hilton Hotels Corp........................................ 4,300 82,238
------------
87,488
------------
MACHINERY (DIVERSIFIED)--0.6%
Caterpillar, Inc.......................................... 4,600 211,600
Cooper Industries, Inc.................................... 1,600 76,300
Deere & Co................................................ 3,500 115,938
Ingersoll-Rand Co......................................... 500 23,469
------------
427,307
------------
MANUFACTURING (DIVERSIFIED)--2.4%
AlliedSignal, Inc......................................... 9,300 412,106
Eaton Corp................................................ 1,000 70,688
ITT Industries, Inc....................................... 1,700 67,575
Illinios Tool Works, Inc.................................. 900 52,200
Johnson Controls, Inc..................................... 1,400 82,600
Minnesota Mining & Manufacturing Co....................... 3,000 213,375
National Service Industries, Inc.......................... 500 19,000
Tenneco, Inc.............................................. 2,800 95,375
Tyco International Ltd.................................... 8,900 671,394
------------
1,684,313
------------
METALS MINING--0.0%
Freeport-McMoRan Copper & Gold, Inc....................... 3,300 31,969
------------
</TABLE>
See Notes to Financial Statements
62
<PAGE>
RESEARCH ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
NATURAL GAS--0.6%
Columbia Energy Group..................................... 900 $ 51,975
Consolidated Natural Gas Co............................... 1,100 59,400
El Paso Energy Corp....................................... 1,300 45,256
Enron Corp................................................ 3,800 216,838
K N Energy, Inc........................................... 400 14,550
------------
388,019
------------
OFFICE EQUIPMENT & SUPPLIES--0.1%
Harris Corp............................................... 1,500 54,938
------------
OIL & GAS (DRILLING & EQUIPMENT)--0.2%
Cooper Cameron Corp. (b).................................. 600 14,700
Diamond Offshore Drilling, Inc............................ 1,000 23,688
ENSCO International, Inc.................................. 1,600 17,100
Global Marine, Inc. (b)................................... 1,700 15,619
Input/Output, Inc. (b).................................... 200 1,463
R&B Falcon Corp. (b)...................................... 3,700 28,213
Smith International, Inc. (b)............................. 500 12,594
------------
113,377
------------
OIL & GAS (EXPLORATION & PRODUCTION)--0.0%
Union Pacific Resources Group, Inc........................ 2,600 23,563
------------
OIL & GAS (REFINING & MARKETING)--0.1%
Sunoco, Inc............................................... 900 32,456
Tosco Corp................................................ 2,100 54,338
Valero Energy Corp........................................ 500 10,625
------------
97,419
------------
OIL (DOMESTIC INTEGRATED)--0.8%
Atlantic Richfield Co..................................... 4,200 274,050
Occidental Petroleum Corp................................. 3,900 65,813
Phillips Petroleum Co..................................... 2,800 119,350
Unocal Corp............................................... 3,200 93,400
------------
552,613
------------
OIL (INTERNATIONAL INTEGRATED)--3.5%
Chevron Corp.............................................. 1,000 82,938
Exxon Corp................................................ 15,900 1,162,688
Mobil Corp................................................ 9,500 827,688
Texaco, Inc............................................... 6,300 333,113
------------
2,406,427
------------
PAPER & FOREST PRODUCTS--0.4%
Boise Cascade Corp........................................ 700 21,700
Bowater, Inc.............................................. 700 29,006
Fort James Corp........................................... 2,500 100,000
Georgia-Pacific Group..................................... 1,200 70,275
Louisiana-Pacific Corp.................................... 1,400 25,638
Mead Corp. (The).......................................... 1,100 32,244
------------
278,863
------------
PERSONAL CARE--0.5%
Gillette Co............................................... 7,500 362,344
------------
PHOTOGRAPHY/IMAGING--0.8%
Eastman Kodak Co.......................................... 5,400 388,800
Xerox Corp................................................ 1,200 141,600
------------
530,400
------------
PUBLISHING (NEWSPAPERS)--1.0%
Gannett Co., Inc.......................................... 3,700 244,894
Knight-Ridder, Inc........................................ 1,100 56,238
New York Times Co. Class A................................ 2,800 97,125
Times Mirror Co. (The) Class A............................ 1,400 78,400
Tribune Co................................................ 2,300 151,800
Washington Post Co. (The) Class B......................... 100 57,794
------------
686,251
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
RAILROADS--0.6%
Burlington Northern Santa Fe Corp......................... 3,800 $ 128,250
CSX Corp.................................................. 2,000 83,000
Norfolk Southern Corp..................................... 3,400 107,738
Union Pacific Corp........................................ 2,400 108,150
Wisconsin Central Transportation Corp. (b)................ 200 3,438
------------
430,576
------------
RESTAURANTS--0.8%
McDonald's Corp........................................... 7,200 551,700
------------
RETAIL (BUILDING SUPPLIES)--0.7%
Home Depot, Inc. (The).................................... 4,500 275,344
Lowe's Companies, Inc..................................... 2,100 107,494
Sherwin-Williams Co....................................... 2,800 82,250
------------
465,088
------------
RETAIL (COMPUTERS & ELECTRONICS)--0.1%
Best Buy Co., Inc. (b).................................... 200 12,275
Circuit City Stores-Circuit City Group.................... 1,500 74,906
CompUSA, Inc. (b)......................................... 1,000 13,063
------------
100,244
------------
RETAIL (DEPARTMENT STORES)--0.9%
Dillard's, Inc., Class A.................................. 1,500 42,563
Federated Department Stores, Inc. (b)..................... 3,200 139,400
May Department Stores Co. (The)........................... 3,500 211,313
Nordstrom, Inc............................................ 1,900 65,906
Penney (J.C.) Co., Inc.................................... 3,900 182,813
------------
641,995
------------
RETAIL (DRUG STORES)--0.0%
General Nutrition Companies, Inc. (b)..................... 900 14,625
------------
RETAIL (FOOD CHAINS)--1.1%
Albertson's, Inc.......................................... 1,200 76,425
American Stores Co........................................ 8,700 321,356
Hannaford Brothers Co..................................... 600 31,800
Kroger Co. (The) (b)...................................... 800 48,400
Safeway, Inc. (b)......................................... 4,100 249,844
------------
727,825
------------
RETAIL (GENERAL MERCHANDISE)--2.6%
Costco Companies, Inc. (b)................................ 3,200 231,000
Dayton Hudson Corp........................................ 6,800 368,900
Kmart Corp. (b)........................................... 7,500 114,844
Sears, Roebuck and Co..................................... 5,900 250,750
Wal-Mart Stores, Inc...................................... 10,600 863,238
------------
1,828,732
------------
RETAIL (SPECIALTY)--0.2%
Autozone, Inc............................................. 2,300 75,756
Corporate Express, Inc. (b)............................... 900 4,669
Toys 'R' Us, Inc. (b)..................................... 3,800 64,125
------------
144,550
------------
RETAIL (SPECIALTY-APPAREL)--0.8%
Gap, Inc. (The)........................................... 7,500 421,875
Limited, Inc. (The)....................................... 300 8,738
TJX Companies, Inc. (The)................................. 5,100 147,900
------------
578,513
------------
SAVINGS & LOAN COMPANIES--0.5%
Astoria Financial Corp.................................... 600 27,450
Commercial Federal Corp................................... 400 9,275
Dime Bancorp, Inc......................................... 900 23,794
Golden West Financial Corp................................ 500 45,844
Ocwen Financial Corp. (b)................................. 300 3,694
Peoples Heritage Financial Group, Inc..................... 600 12,000
Washington Federal, Inc................................... 200 5,338
</TABLE>
See Notes to Financial Statements
63
<PAGE>
RESEARCH ENHANCED INDEX SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
SAVINGS & LOAN COMPANIES--CONTINUED
Washington Mutual, Inc.................................... 5,100 $ 194,756
------------
322,151
------------
SERVICES (COMMERCIAL & CONSUMER)--0.7%
Cendant Corp. (b)......................................... 14,000 266,875
Service Corp. International............................... 4,800 182,700
Western Resources, Inc.................................... 700 23,275
------------
472,850
------------
SERVICES (DATA PROCESSING)--0.3%
Equifax, Inc.............................................. 2,700 92,306
First Data Corp........................................... 4,300 136,256
------------
228,562
------------
SPECIALTY PRINTING--0.1%
Donnelley (R.R.) & Sons Co................................ 2,200 96,388
------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.6%
AirTouch Communications, Inc. (b)......................... 5,400 389,475
------------
TELECOMMUNICATIONS (LONG DISTANCE)--3.8%
AT&T Corp................................................. 16,700 1,256,675
MCI WorldCom, Inc. (b).................................... 17,000 1,219,750
Sprint Corp............................................... 1,600 134,600
------------
2,611,025
------------
TELEPHONE--3.8%
Ameritech Corp............................................ 6,300 399,263
Bell Atlantic Corp........................................ 11,700 664,706
BellSouth Corp............................................ 5,600 279,300
Cincinnati Bell, Inc...................................... 1,200 45,249
Frontier Corp............................................. 2,200 74,800
GTE Corp.................................................. 10,300 694,606
SBC Communications, Inc................................... 8,500 455,813
------------
2,613,737
------------
TEXTILES (APPAREL)--0.0%
Fruit of The Loom, Inc. Class A (b)....................... 800 11,050
Unifi, Inc................................................ 700 13,694
------------
24,744
------------
TOBACCO--1.8%
Philip Morris Companies, Inc.............................. 22,800 1,219,800
------------
TRUCKERS--0.0%
CNF Transportation, Inc................................... 400 15,025
Ryder System, Inc......................................... 600 15,600
------------
30,625
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
TRUCKS & PARTS--0.0%
PACCAR, Inc............................................... 400 $ 16,450
------------
WASTE MANAGEMENT--0.8%
Browning-Ferris Industries, Inc........................... 2,700 76,781
Waste Management, Inc..................................... 10,400 484,900
------------
561,681
------------
TOTAL COMMON STOCKS
(Identified cost $55,387,293)...................................... 65,875,802
------------
FOREIGN COMMON STOCKS--2.8%
ALUMINUM--0.2%
Alcan Aluminum Ltd. (Canada).............................. 3,700 100,131
------------
BEVERAGES (ALCOHOLIC)--0.4%
Seagram Company Ltd. (The) (Canada)....................... 7,600 288,800
------------
OIL (INTERNATIONAL INTEGRATED)--1.5%
Royal Dutch Petroleum Co. NY Registered Shares
(Netherlands)........................................... 21,300 1,019,737
------------
PERSONAL CARE--0.7%
Unilever NV NY Registered Shares (Netherlands)............ 6,000 497,625
------------
TELEPHONE--0.0%
Northern Telecom Ltd. (Canada)............................ 500 25,063
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,870,790)....................................... 1,931,356
------------
TOTAL LONG-TERM INVESTMENTS--97.7%
(Identified cost $57,368,738)...................................... 67,918,053
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
(000)
-------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.2%
FEDERAL AGENCY SECURITIES--4.2%
FHLB 4.5%, 1/4/99......................................... $2,920 2,918,905
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $2,918,905)....................................... 2,918,905
------------
TOTAL INVESTMENTS--101.9%
(Identified cost $60,287,643)...................................... 70,836,958(a)
Cash and receivables, less liabilities--(1.9%)..................... (1,315,033)
------------
NET ASSETS--100.0%................................................... $ 69,521,925
------------
------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $12,979,481 and gross
depreciation of $2,474,350 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$60,331,827.
(b) Non-income producing.
(c) All or portion segregated as collateral.
See Notes to Financial Statements
64
<PAGE>
RESEARCH ENHANCED INDEX SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$60,287,643).............................................. $ 70,836,958
Receivables
Fund shares sold.......................................... 252,861
Investment securities sold................................ 169,444
Dividends and interest.................................... 71,993
Variation margin for future contracts..................... 3,424
Prepaid expenses............................................ 1,207
-------------
Total assets............................................ 71,335,887
-------------
LIABILITIES
Payables
Custodian................................................. 36,249
Investment securities purchased........................... 1,571,163
Fund shares repurchased................................... 147,283
Investment advisory fee................................... 709
Financial agent fee....................................... 7,052
Trustees' fee............................................. 5,060
Accrued expenses.......................................... 46,446
-------------
Total liabilities....................................... 1,813,962
-------------
NET ASSETS.................................................. $ 69,521,925
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $ 58,737,990
Accumulated net realized gain............................. 171,670
Net unrealized appreciation............................... 10,612,265
-------------
NET ASSETS.................................................. $ 69,521,925
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 5,313,885
-------------
-------------
Net asset value and offering price per share................ $ 13.08
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 681,247
Interest.................................................. 114,175
Foreign taxes withheld.................................... (3,799)
-------------
Total investment income................................. 791,623
-------------
EXPENSES
Investment advisory fee................................... 218,150
Financial agent fee....................................... 62,025
Custodian................................................. 48,435
Professional.............................................. 21,318
Trustees.................................................. 13,949
Printing.................................................. 24,456
Miscellaneous............................................. 6,166
-------------
Total expenses.......................................... 394,499
Less expenses borne by investment adviser............... (126,575)
-------------
Net expenses............................................ 267,924
-------------
NET INVESTMENT INCOME....................................... 523,699
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities........................... 2,902,631
Net realized gain on futures contracts.................... 105,462
Net change in unrealized appreciation (depreciation) on
investments............................................. 9,780,453
-------------
NET GAIN ON INVESTMENTS..................................... 12,788,546
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 13,312,245
-------------
-------------
</TABLE>
See Notes to Financial Statements
65
<PAGE>
RESEARCH ENHANCED INDEX SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
JULY 15, 1997
YEAR ENDED TO
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 523,699 $ 155,598
Net realized gain (loss).................................. 3,008,093 296,041
Net change in unrealized appreciation (depreciation)...... 9,780,453 831,812
-------------- --------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... 13,312,245 1,283,451
-------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (532,936) (146,361)
Net realized gains........................................ (2,994,712) (137,752)
-------------- --------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (3,527,648) (284,113)
-------------- --------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (5,285,851 and 3,153,122
shares, respectively)................................... 63,644,481 31,994,673
Net asset value of shares issued from reinvestment of
distributions (271,800 and 27,107 shares,
respectively)........................................... 3,527,648 284,113
Cost of shares repurchased (3,186,084 and 237,911 shares,
respectively)........................................... (38,286,173) (2,426,752)
-------------- --------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 28,885,956 29,852,034
-------------- --------------
NET INCREASE IN NET ASSETS................................ 38,670,553 30,851,372
NET ASSETS
Beginning of period....................................... 30,851,372 0
-------------- --------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $0 AND $9,237, RESPECTIVELY).................. $ 69,521,925 $ 30,851,372
-------------- --------------
-------------- --------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
YEAR INCEPTION
ENDED 7/15/97 TO
12/31/98 12/31/97
----------- -----------
<S> <C> <C>
Net asset value, beginning of period......... $10.49 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............... 0.12(2) 0.05(2)
Net realized and unrealized gain (loss).... 3.19 0.54
----------- -----------
TOTAL FROM INVESTMENT OPERATIONS......... 3.31 0.59
----------- -----------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.12) (0.05)
Dividends from net realized gains.......... (0.60) (0.05)
----------- -----------
TOTAL DISTRIBUTIONS...................... (0.72) (0.10)
----------- -----------
CHANGE IN NET ASSET VALUE.................... 2.59 0.49
----------- -----------
NET ASSET VALUE, END OF PERIOD............... $13.08 $10.49
----------- -----------
----------- -----------
Total return................................. 31.68% 5.83%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........ $69,522 $30,851
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses......................... 0.55% 0.55%(1)
Net investment income...................... 1.08% 1.46%(1)
Portfolio turnover rate...................... 45% 9%(3)
</TABLE>
(1) Annualized.
(2) Includes reimbursement of operating expenses by investment adviser of $0.03
and $0.02 per share, respectively.
(3) Not annualized.
See Notes to Financial Statements
66
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
INVESTOR PROFILE
The Fund seeks to achieve long-term capital appreciation by investing in
approximately 50 companies management considers to have the best prospects for
appreciation potential.
INVESTMENT ADVISER'S REPORT
Since the Fund's inception on March 2 through December 31, 1998, the Fund
returned 26.26% compared with a return of 18.95% for the S&P 500 Index(1) for
the same period. All performance figures assume reinvestment of distributions
and net of sales charges.
Both market trends and individual stock selections impacted absolute as well
as relative performance of the Fund. While the Fund's performance tracked
closely to the S&P 500 Index during the first half of 1998, it outperformed the
Index by 5.7% during the second half of 1998.
The Fund aggressively shifted into the technology, consumer cyclical, and
financial services sectors during the September time frame where the market
began to bottom from its summer correction. The market recovered strongly from
its lows of October, and our concentration in these groups contributed to the
outperformance of the Fund.
The sell-off or mini bear market during the summer of 1998 provided
interesting buying opportunities. We used weakness in the market to upgrade the
portfolio by concentrating on high quality growth companies that were selling at
what we felt were very depressed valuations. We took the opportunity to increase
positions and add new names in the technology and financial services sectors. We
also reduced our exposure in the consumer staples sector, which was continuing
to experience poor financial results due to weakness in their international
operations.
We remain very bullish on the outlook for the technology sector, which is
experiencing continued strong growth driven by a variety of factors. In the
communication segment, leading companies such as Lucent, Tellabs, Cisco Systems,
and MCI/WorldCom are experiencing explosive growth driven by the continued build
out of the worldwide communication infrastructure. In addition, proliferation of
the Internet and e-commerce, which allows the creation of new businesses, will
continue to be a major driver of the communication infrastructure build out. In
the semiconductor segment, the industry has begun to recover from the downturn
triggered by the aggressive capacity expansion of the mid 1990's, along with the
weakening demand in Asia.
OUTLOOK
The corporate earnings cycle of the past few years was one of the longest
and most resilient on record. However, as we enter 1999, the earnings growth
prospects for the AVERAGE S&P 500 company are expected to slow to their historic
rate in the single-digit range. This could be good news for the Nifty Fifty
Fund, which focuses on high quality growth companies whose earnings we expect to
grow much faster than those of the average company could could. The Fund had
some of its best years, both on an absolute and relative basis, when the S&P 500
Index produced negative earnings growth. Of course, past performance is no
guarantee of future results.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
67
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ENGEMANN NIFTY FIFTY
SERIES S&P 500 INDEX*
<S> <C> <C>
3/2/98 $10,000.00 $10,000.00
12/31/98 $12,625.86 $11,895.30
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- - -----------------------------------------------------------------------
Engemann Nifty-Fifty Series 26.26%
- - -----------------------------------------------------------------------
S&P 500 Index* 18.95%
- - -----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
* The S&P 500 Stock Index is an unmanaged but commonly used measure of stock
market total return performance. The index is not available for direct
investment.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
---------- -----------
<S> <C> <C> <C>
COMMON STOCKS--98.7%
BANKS (MAJOR REGIONAL)--3.3%
State Street Corp..................................................... 880 $ 61,215
Wells Fargo & Co...................................................... 9,360 373,815
-----------
435,030
-----------
BEVERAGES (NON-ALCOHOLIC)--2.2%
Coca-Cola Co. (The)................................................... 3,050 203,969
PepsiCo, Inc.......................................................... 2,170 88,834
-----------
292,803
-----------
CHEMICALS (DIVERSIFIED)--0.5%
Monsanto Co........................................................... 1,380 65,550
-----------
COMMUNICATIONS EQUIPMENT--6.0%
Lucent Technologies, Inc.............................................. 4,520 497,200
Tellabs, Inc.(b)...................................................... 4,170 285,906
-----------
783,106
-----------
COMPUTERS (HARDWARE)--3.7%
Compaq Computer Corp.................................................. 6,890 288,949
Dell Computer Corp.(b)................................................ 2,770 202,729
-----------
491,678
-----------
COMPUTERS (NETWORKING)--3.6%
Cisco Systems, Inc. (b)............................................... 5,135 476,592
-----------
COMPUTERS (PERIPHERALS)--3.8%
EMC Corp. (b)......................................................... 5,910 502,350
-----------
COMPUTERS (SOFTWARE & SERVICES)--8.0%
BMC Software, Inc. (b)................................................ 6,250 278,516
Compuware Corp. (b)................................................... 1,970 153,906
Microsoft Corp. (b)................................................... 2,940 407,741
Oracle Corp. (b)...................................................... 4,780 206,137
-----------
1,046,300
-----------
<CAPTION>
SHARES VALUE
---------- -----------
<S> <C> <C> <C>
CONSUMER FINANCE--0.5%
MBNA Corp............................................................. 2,595 $ 64,713
-----------
ELECTRICAL EQUIPMENT--3.1%
General Electric Co................................................... 3,990 407,229
-----------
ELECTRONICS (SEMICONDUCTORS)--7.0%
Intel Corp............................................................ 3,870 458,837
Texas Instruments, Inc................................................ 5,350 457,759
-----------
916,596
-----------
ENTERTAINMENT--0.9%
Walt Disney Co. (The)................................................. 3,880 116,400
-----------
FINANCIAL (DIVERSIFIED)--7.7%
American Express Co................................................... 2,300 235,175
Citigroup, Inc........................................................ 5,220 258,390
Freddie Mac........................................................... 5,830 375,671
Morgan Stanley, Dean Witter & Co...................................... 2,080 147,680
-----------
1,016,916
-----------
HEALTH CARE (DIVERSIFIED)--2.5%
American Home Products Corp........................................... 2,260 127,266
Johnson & Johnson..................................................... 2,350 197,106
-----------
324,372
-----------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--7.0%
Merck & Co., Inc...................................................... 1,960 289,467
Pfizer, Inc........................................................... 4,230 530,601
Schering-Plough Corp.................................................. 1,740 96,135
-----------
916,203
-----------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--4.2%
Medtronic, Inc........................................................ 7,520 558,360
-----------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.6%
Colgate-Palmolive Co.................................................. 2,280 211,755
-----------
</TABLE>
See Notes to Financial Statements
68
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
<TABLE>
<CAPTION>
SHARES VALUE
---------- -----------
<S> <C> <C> <C>
INSURANCE (MULTI-LINE)--2.0%
American International Group, Inc..................................... 2,665 $ 257,506
-----------
INVESTMENT BANKING/BROKERAGE--2.0%
Merrill Lynch & Co., Inc.............................................. 4,030 269,002
-----------
INVESTMENT MANAGEMENT--1.1%
Franklin Resources, Inc............................................... 3,110 99,520
Price (T. Rowe) Associates, Inc....................................... 1,400 47,950
-----------
147,470
-----------
LODGING-HOTELS--2.7%
Carnival Corp......................................................... 7,450 357,600
-----------
MANUFACTURING (DIVERSIFIED)--0.6%
United Technologies Corp.............................................. 700 76,125
-----------
PERSONAL CARE--2.4%
Gillette Co........................................................... 6,610 319,346
-----------
RESTAURANTS--2.0%
McDonald's Corp....................................................... 3,510 268,954
-----------
RETAIL (BUILDING SUPPLIES)--3.4%
Home Depot, Inc. (The)................................................ 4,520 276,568
Lowe's Companies, Inc................................................. 3,460 177,109
-----------
453,677
-----------
RETAIL (DEPARTMENT STORES)--0.6%
Kohl's Corp. (b)...................................................... 1,390 85,398
-----------
RETAIL (DRUG STORES)--1.5%
Walgreen Co........................................................... 3,300 193,256
-----------
RETAIL (GENERAL MERCHANDISE)--2.1%
Dayton Hudson Corp.................................................... 5,040 273,423
-----------
RETAIL (SPECIALTY)--1.0%
Staples, Inc. (b)..................................................... 2,880 125,820
-----------
<CAPTION>
SHARES VALUE
---------- -----------
<S> <C> <C> <C>
SERVICES (ADVERTISING/MARKETING)--1.3%
Interpublic Group of Companies, Inc. (The)............................ 2,090 $ 166,678
-----------
SERVICES (COMMERCIAL & CONSUMER)--3.4%
Cendant Corp. (b)..................................................... 23,530 448,541
-----------
SERVICES (DATA PROCESSING)--0.5%
Automatic Data Processing, Inc........................................ 870 69,763
-----------
TELECOMMUNICATIONS (LONG DISTANCE)--4.9%
MCI WorldCom, Inc. (b)................................................ 8,890 637,858
-----------
TOBACCO--1.6%
Philip Morris Companies, Inc.......................................... 3,860 206,510
-----------
TOTAL COMMON STOCKS
(Identified cost $10,684,999)..................................................... 12,982,880
-----------
TOTAL LONG-TERM INVESTMENTS--98.7%
(Identified cost $10,684,999)..................................................... 12,982,880
-----------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000)
----------- -----------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--4.0%
COMMERCIAL PAPER--4.0%
Receivables Capital Corp. 5.15%, 1/4/99......... A-1+ $ 530 529,772
------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $529,772)................................................. 529,772
------------
TOTAL INVESTMENTS--102.7%
(Identified cost $11,214,771).............................................. 13,512,652(a)
Cash and receivables, less liabilities--(2.7%)............................. (359,170)
------------
NET ASSETS--100.0%........................................................... $ 13,153,482
------------
------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $2,253,583 and gross
depreciation of $195,750 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$11,454,819.
(b) Non-income producing.
See Notes to Financial Statements
69
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$11,214,771).................................... $ 13,512,652
Cash.............................................. 834
Receivables
Investment securities sold...................... 43,775
Fund shares sold................................ 42,127
Dividends and interest.......................... 4,942
Prepaid expenses.................................. 201
-------------
Total assets.................................. 13,604,531
-------------
LIABILITIES
Payables
Investment securities purchased................. 401,888
Fund shares repurchased......................... 3,119
Investment advisory fee......................... 2,625
Trustees' fee................................... 5,044
Financial agent fee............................. 3,612
Accrued expenses................................ 34,761
-------------
Total liabilities............................. 451,049
-------------
NET ASSETS........................................ $ 13,153,482
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial
interest...................................... $ 11,099,730
Accumulated net realized loss................... (244,129)
Net unrealized appreciation..................... 2,297,881
-------------
NET ASSETS........................................ $ 13,153,482
-------------
-------------
Shares of beneficial interest outstanding, $1 par
value, unlimited authorization.................. 1,042,192
-------------
-------------
Net asset value and offering price per share...... $ 12.62
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 45,163
Interest.................................................. 14,709
-------------
Total investment income................................. 59,872
-------------
EXPENSES
Investment advisory fee................................... 48,195
Financial agent fee....................................... 25,042
Custodian................................................. 21,061
Professional.............................................. 13,516
Printing.................................................. 12,683
Trustees.................................................. 12,647
Miscellaneous............................................. 5,393
-------------
Total expenses.......................................... 138,537
Less expense borne by investment adviser................ (82,263)
-------------
Net expenses............................................ 56,274
-------------
NET INVESTMENT INCOME....................................... 3,598
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (244,129)
Net change in unrealized appreciation (depreciation) on
investments............................................. 2,297,881
-------------
NET GAIN ON INVESTMENTS..................................... 2,053,752
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 2,057,350
-------------
-------------
</TABLE>
See Notes to Financial Statements
70
<PAGE>
ENGEMANN NIFTY FIFTY SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 3,598
Net realized gain (loss).................................. (244,129)
Net change in unrealized appreciation (depreciation)...... 2,297,881
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 2,057,350
----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (3,598)
In excess of net investment income........................ (1,543)
----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (5,141)
----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (1,342,696 shares).......... 14,285,565
Net asset value of shares issued from reinvestment of
distributions (406 shares).............................. 5,141
Cost of shares repurchased (300,910 shares)............... (3,189,433)
----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 11,101,273
----------------
NET INCREASE IN NET ASSETS................................ 13,153,482
NET ASSETS
Beginning of period....................................... --
----------------
END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT
INCOME OF $0)........................................... $13,153,482
----------------
----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).............................. 0.01(3)(4)
Net realized and unrealized gain (loss)................... 2.62
------------
TOTAL FROM INVESTMENT OPERATIONS........................ 2.63
------------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.01)
In excess of net investment income........................ --
------------
TOTAL DISTRIBUTIONS..................................... (0.01)
------------
CHANGE IN NET ASSET VALUE................................... 2.62
------------
NET ASSET VALUE, END OF PERIOD.............................. $12.62
------------
------------
Total return................................................ 26.26%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)....................... $13,153
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses........................................ 1.05%(1)
Net investment income..................................... 0.07%(1)
Portfolio turnover rate..................................... 90%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.13
per share.
(4) Computed using average shares outstanding.
See Notes to Financial Statements
71
<PAGE>
SENECA MID-CAP GROWTH SERIES
INVESTOR PROFILE
Seneca Mid Cap Growth Series is appropriate for investors seeking long-term
capital appreciation by investing primarily in stocks of dynamic, rapidly
growing companies and focusing on strong relative earnings growth. The Fund
primarily invests in companies with small to medium size capitalizations, and
investors should note that small company investing involves added risks,
including greater price volatility, less liquidity and increased competitive
threat.
INVESTMENT ADVISER'S REPORT
Since its inception on March 2, 1998 through year-end, the Fund returned
21.75% compared with a return of 12.21% for the S&P MidCap 400 Index(1) and
(5.72)% for the Russell 2000 Growth Index(2). All performance figures assume
reinvestment of distributions and are net of sales charges.
The U.S. stock market rebounded strongly from the third quarter's economic
crisis. The S&P 500 Index was up 21.3%, the biggest quarterly gain since the
first quarter of 1987. The S&P 500 Index was up 28.8% for 1998, an unprecedented
fourth year that the market has produced a return above 20%. Corporate bonds
also recovered from their "crisis lows" as corporate profits and the interest
rate environment remained positive. During the fourth quarter, the market
broadened somewhat, and mid-capitalization stocks actually outperformed the
largest companies. However, small-capitalization stocks once again
underperformed. Technology was the real story for the quarter and the year. Huge
gains in the largest technology stocks, such as IBM and Microsoft, were eclipsed
only by the Internet craze.
Seneca's "Earnings Driven Growth" strategy performed well as we benefited
from good stock selection within the technology and financial services sectors.
Among our "best performers" in the year's fourth and best quarter were Outdoor
Systems, PMC-Sierra, and Compuware. Stocks in our portfolio continue to produce
significantly above-market earnings growth rates. Of course, past performance is
no guarantee of future results.
OUTLOOK
Though the U.S. economy is slowing, we believe earnings should continue to
grow and should produce moderate equity returns. Upside is possible via good
stock selection and potentially, equity multiple expansion if interest rates
decline further. Growth stocks should continue to excel as investors seek
companies that can deliver above-average growth in a challenging environment. We
see particular opportunity in small- and mid-capitalization stocks due to their
higher-than-market earnings growth rates and lower-than-market valuations.
However, the increased volatility we experienced in 1998 should persist into
1999, particularly if further cracks appear in the global financial structure,
and because the Y2K problem is approaching.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SENECA MID CAP GROWTH SERIES S&P 400 MIDCAP INDEX(1)
<S> <C> <C>
3/2/98 $10,000.00 $10,000.00
12/31/98 $12,175.20 $11,220.92
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- - ----------------------------------------------------------------------
Seneca Mid-Cap Growth Series 21.75%
- - ----------------------------------------------------------------------
S&P 400 MidCap Index(1) 12.21%
- - ----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
(1) The S&P 400 MidCap Index is an unmanaged, commonly used measure of total
return performance of mid-capitalization companies. The Index is not
available for direct investment.
(2) The Russell 2000 Growth Index is an unmanaged, commonly used measure of
total return performance for small-capitalization companies with
above-average growth orientation. The Index is not available for direct
investment.
72
<PAGE>
SENECA MID-CAP GROWTH SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C> <C>
COMMON STOCKS--100.6%
BANKS (MAJOR REGIONAL)--8.9%
AmSouth Bancorporation.............................................. 3,950 $ 180,218
Comerica, Inc....................................................... 3,885 264,908
Northern Trust Corp................................................. 2,900 253,206
-----------
698,332
-----------
BEVERAGES (ALCOHOLIC)--2.9%
Coors (Adolph) Co. Class B.......................................... 4,050 228,572
-----------
BEVERAGES (NON-ALCOHOLIC)--2.7%
Whitman Corp........................................................ 8,270 209,851
-----------
BIOTECHNOLOGY--3.0%
Centocor, Inc. (b).................................................. 5,250 236,906
-----------
BROADCASTING (TELEVISION, RADIO & CABLE)--3.0%
Chancellor Media Corp. (b).......................................... 5,010 239,854
-----------
COMMUNICATIONS EQUIPMENT--3.2%
Ascend Communications, Inc. (b)..................................... 3,810 250,508
-----------
COMPUTERS (SOFTWARE & SERVICES)--23.3%
America Online, Inc. (b)............................................ 1,580 252,800
BMC Software, Inc. (b).............................................. 3,320 147,948
Citrix Systems, Inc. (b)............................................ 1,750 169,859
Computer Horizons Corp. (b)......................................... 5,530 147,236
Compuware Corp. (b)................................................. 3,770 294,531
Documentum, Inc. (b)................................................ 4,270 228,178
Electronic Arts, Inc. (b)........................................... 3,080 172,865
Legato Systems. Inc. (b)............................................ 3,030 199,791
VERITAS Software Co. (b)............................................ 3,765 225,665
-----------
1,838,873
-----------
CONSUMER FINANCE--2.5%
Providian Financial Corp............................................ 2,660 199,500
-----------
ELECTRONICS (INSTRUMENTATION)--0.4%
Micron Electronics, Inc. (b)........................................ 1,620 28,046
-----------
ELECTRONICS (SEMICONDUCTORS)--8.4%
Advanced Micro Devices, Inc......................................... 6,850 198,222
Micron Technology, Inc. (b)......................................... 3,450 174,440
Xilinx, Inc. (b).................................................... 4,520 294,365
-----------
667,027
-----------
ENTERTAINMENT--3.0%
SFX Entertainment, Inc. Class A (b)................................. 4,330 237,609
-----------
HEALTH CARE (DIVERSIFIED)--6.8%
McKesson Corp....................................................... 3,130 247,466
Mylan Laboratories, Inc............................................. 9,140 287,910
-----------
535,376
-----------
HEALTH CARE (HOSPITAL MANAGMENT)--0.7%
Health Management Associates Inc. Class A (b)....................... 2,690 58,171
-----------
HEALTH CARE (LONG TERM CARE)--3.1%
Omnicare, Inc....................................................... 7,020 243,946
-----------
<CAPTION>
SHARES VALUE
--------- -----------
<S> <C> <C> <C>
INSURANCE (MULTI-LINE)--2.3%
Annuity and Life Re (Holdings), Ltd................................. 6,590 $ 177,930
-----------
OFFICE EQUIPMENT & SUPPLIES--3.5%
Lexmark International Group, Inc. (b)............................... 1,600 160,800
Miller (Herman), Inc................................................ 4,280 115,025
-----------
275,825
-----------
OIL (DOMESTIC INTEGRATED)--2.8%
USX-Marathon Group.................................................. 7,380 222,323
-----------
RETAIL (DISCOUNTERS)--3.4%
Dollar Tree Stores, Inc (b)......................................... 6,175 269,770
-----------
RETAIL (SPECIALTY)--3.1%
Staples, Inc. (b)................................................... 5,580 243,776
-----------
RETAIL (SPECIALTY--APPAREL)--2.8%
TJX Companies, Inc. (The)........................................... 7,710 223,590
-----------
SERVICES (ADVERTISING/MARKETING)--4.9%
Lamar Advertising Co. (b)........................................... 2,080 77,480
Outdoor Systems, Inc. (b)........................................... 10,175 305,250
-----------
382,730
-----------
SERVICES (COMPUTER SYSTEMS)--0.6%
International Network Services (b).................................. 770 51,205
-----------
SERVICES (DATA PROCESSING)--1.3%
Administaff, Inc. (b)............................................... 3,960 99,000
-----------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--1.5%
Crown Castle International Corp. (b)................................ 5,200 122,200
-----------
WASTE MANAGEMENT--2.5%
Republic Services, Inc. Class A (b)................................. 10,850 200,047
-----------
TOTAL COMMON STOCKS
(Identified cost $6,526,227)................................................... 7,940,967
-----------
TOTAL LONG-TERM INVESTMENTS--100.6%
(Identified cost $6,526,227)................................................... 7,940,967
-----------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000) VALUE
----------- ------------- ---------------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--3.6%
COMMERCIAL PAPER--3.6%
Receivables Capital Corp. 5.15% 1/4/99.......... A-1+ $ 285 284,877
---------------
TOTAL SHORT-TERM OBLIGATIONS--3.6%
(Identified cost $284,877)................................................... 284,877
---------------
TOTAL INVESTMENTS--104.2%
(Identified cost $6,811,104)................................................. 8,225,844(a)
Cash and receivables, less liabilities--(4.2%)............................... (328,700)
---------------
NET ASSETS--100.0%............................................................. $ 7,897,144
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $1,570,230 and gross
depreciation of $163,954 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$6,819,568.
(b) Non-income producing.
See Notes to Financial Statements
73
<PAGE>
SENECA MID-CAP GROWTH SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$6,811,104)..................................... $ 8,225,844
Cash.............................................. 967
Receivables
Investment securities sold...................... 299,567
Fund shares sold................................ 23,767
Interest and dividends.......................... 10,635
Prepaid expenses.................................. 126
-------------
Total assets.................................. 8,560,906
-------------
LIABILITIES
Payables
Investment securities purchased................. 616,193
Trustees' fee................................... 5,044
Financial agent fee............................. 3,491
Investment advisory fee......................... 3,451
Accrued expenses................................ 35,583
-------------
Total liabilities............................. 663,762
-------------
NET ASSETS........................................ $ 7,897,144
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial
interest...................................... $ 6,655,698
Distributions in excess of net investment
income........................................ (697)
Accumulated net realized loss................... (172,597)
Net unrealized appreciation..................... 1,414,740
-------------
NET ASSETS........................................ $ 7,897,144
-------------
-------------
Shares of beneficial interest outstanding, $1 par
value, unlimited authorization.................. 649,208
-------------
-------------
Net asset value and offering price per share...... $ 12.16
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest.................................................. $ 24,455
Dividends................................................. 22,084
Foreign taxes withheld.................................... (15)
-------------
Total investment income................................. 46,524
-------------
EXPENSES
Investment advisory fee................................... 31,013
Financial agent fee....................................... 24,059
Professional.............................................. 13,453
Trustees.................................................. 12,647
Printing.................................................. 12,434
Custodian................................................. 11,701
Miscellaneous............................................. 4,123
-------------
Total expenses.......................................... 109,430
Less expense borne by investment adviser................ (68,689)
-------------
Net expenses............................................ 40,741
-------------
NET INVESTMENT INCOME....................................... 5,783
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (172,597)
Net change in unrealized appreciation (depreciation) on
investments............................................. 1,414,740
-------------
NET GAIN ON INVESTMENTS..................................... 1,242,143
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 1,247,926
-------------
-------------
</TABLE>
See Notes to Financial Statements
74
<PAGE>
SENECA MID-CAP GROWTH SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 5,783
Net realized gain (loss).................................. (172,597)
Net change in unrealized appreciation (depreciation)...... 1,414,740
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 1,247,926
----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (5,783)
In excess of net investment income........................ (697)
----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (6,480)
----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (958,184 shares)............ 9,826,161
Net asset value of shares issued from reinvestment of
distributions (557 shares).............................. 6,480
Cost of shares repurchased (309,533 shares)............... (3,176,943)
----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 6,655,698
----------------
NET INCREASE IN NET ASSETS................................ 7,897,144
NET ASSETS
Beginning of period....................................... --
----------------
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME OF ($697))............................ $7,897,144
----------------
----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM
INCEPTION
3/2/98 TO
12/31/98
------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).............................. 0.01(3)(4)
Net realized and unrealized gain (loss)................... 2.16
------------
TOTAL FROM INVESTMENT OPERATIONS........................ 2.17
------------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.01)
In excess of net investment income........................ --
------------
TOTAL DISTRIBUTIONS..................................... (0.01)
------------
CHANGE IN NET ASSET VALUE................................... 2.16
------------
NET ASSET VALUE, END OF PERIOD.............................. $12.16
------------
------------
Total return................................................ 21.75%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)....................... $7,897
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses........................................ 1.05%(1)
Net investment income..................................... 0.15%(1)
Portfolio turnover rate..................................... 127%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.15
per share.
(4) Computed using average shares outstanding.
See Notes to Financial Statements
75
<PAGE>
GROWTH AND INCOME SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking dividend growth, current
income and capital appreciation through investments in common stocks.
INVESTMENT ADVISER'S REPORT
The period from March 2, 1998, the Fund's inception date, to December 31,
1998 was an unusually strong and tumultuous period for common stocks. The S&P
500 Index(1) returned 18.95%. A Russian currency devaluation and bond default,
and the potential demise of hedge fund manager Long-Term Capital Management
resulted in a mid-summer liquidity crisis that sent stocks into a tail-spin.
Responding to the impending crisis, the Federal Open Market Committee lowered
interest rates on three separate occasions. Several European countries followed
suit and the decline in interest rates worldwide helped stock prices to rebound
to new highs in December.
From the Fund's inception (March 2) to year-end, the Fund posted a return of
20.45%, 150 basis points ahead of the S&P 500 Index. All performance figures
assume reinvestment of distributions and are net of sales charges.
The portfolio is managed using a proprietary model that ranks the 1,500
largest stocks that trade in the U.S. based on certain valuation criteria,
earnings estimate changes, earnings surprises and other measures. The portfolio
is then structured to resemble the characteristics of the S&P 500 benchmark
index.
During the period, three of our most successful stocks were: Microsoft
Corporation, Intel Corporation and AT&T Corporation. Despite its Government
lawsuit, Microsoft traded up on the strength of its new product cycle that
includes Windows 98, a new version of Windows NT due out next year, and a new
version of its database software. Microsoft also beat earnings estimates in each
of its reporting periods in calendar 1998. Intel benefited from robust demand
for personal computers. Late in the year, the company revised its expectations
for the fourth quarter because demand was stronger-than-anticipated. This
resulted in a flurry of analyst upgrades, raising earnings estimates and target
prices. AT&T stock performed well as a result of a series of earnings reports
that exceeded analysts' estimates. Under the leadership of CEO C. Michael
Armstrong, the company has positioned itself to be a viable competitor in the
global telecommunications market through mergers and alliances. Pending
acquisitions include: cable operator Tele-Communications Inc., Vanguard Cellular
and IBM's Global Network business. An alliance with British Telecommunications
PLC is viewed positively for the company's overseas growth prospects.
OUTLOOK
A recent WALL STREET JOURNAL survey of economists predicts: moderating
economic growth, declining short-term interest rates, continued low inflation
and a slight uptick in the unemployment rate. S&P 500 earnings are expected to
grow next year at a modest pace, with the strongest performance coming from the
technology, communications and consumer cyclical sectors.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
76
<PAGE>
GROWTH AND INCOME SERIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GROWTH AND INCOME
SERIES S&P 500 INDEX*
<S> <C> <C>
3/2/98 $10,000.00 $10,000.00
12/31/98 $12,045.30 $11,895.30
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- - -----------------------------------------------------------------------
Phoenix Growth and Income Series 20.45%
- - -----------------------------------------------------------------------
S&P 500 Index* 18.95%
- - -----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
* The S&P 500 Index is an unmanaged but commonly used measure of stock market
total return performance. The index is not available for direct investment.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
COMMON STOCKS--96.9%
AEROSPACE/DEFENSE--0.8%
Boeing Co. (The).................................................... 600 $ 19,575
Cordant Technologies, Inc........................................... 2,200 82,500
Gulfstream Aerospace Corp. (b)...................................... 1,300 69,225
Sundstrand Corp..................................................... 2,800 145,250
------------
316,550
------------
AIRLINES--0.8%
AMR Corp. (b)....................................................... 3,100 184,062
Alaska Air Group, Inc. (b).......................................... 400 17,700
Comair Holdings, Inc................................................ 1,300 43,875
Delta Air Lines, Inc................................................ 1,400 72,800
US Airways Group, Inc. (b).......................................... 200 10,400
------------
328,837
------------
ALUMINUM--0.8%
Aluminum Company of America......................................... 2,400 178,950
Reynolds Metals Co.................................................. 3,300 173,869
------------
352,819
------------
AUTO PARTS & EQUIPMENT--0.1%
Arvin Industries, Inc............................................... 300 12,506
Meritor Automotive.................................................. 800 16,950
------------
29,456
------------
AUTOMOBILES--2.1%
Ford Motor Co....................................................... 14,700 862,706
------------
BANKS (MAJOR REGIONAL)--6.3%
Bank One Corp....................................................... 7,574 386,747
City National Corp.................................................. 2,600 108,225
Cullen/Frost Bankers, Inc........................................... 1,500 82,312
First Union Corp.................................................... 8,200 498,662
Fleet Financial Group, Inc.......................................... 11,000 $ 491,562
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
BANKS (MAJOR REGIONAL)--CONTINUED
Hibernia Corp. Class A.............................................. 6,700 116,412
Mellon Bank Corp.................................................... 1,400 96,250
PNC Bank Corp....................................................... 400 21,650
SunTrust Banks, Inc................................................. 3,900 298,350
Trustmark Corp...................................................... 500 11,312
UnionBanCal Corp.................................................... 14,400 490,500
Wells Fargo & Co.................................................... 400 15,975
------------
2,617,957
------------
BANKS (MONEY CENTER)--2.1%
BankAmerica Corp.................................................... 1,600 96,200
Chase Manhattan Corp. (The)......................................... 11,200 762,300
------------
858,500
------------
BEVERAGES (ALCOHOLIC)--1.1%
Anheuser-Busch Companies, Inc....................................... 6,000 393,750
Canandaigua Brands, Inc. Class A (b)................................ 1,100 63,594
Coors (Adolph) Co. Class B.......................................... 200 11,287
------------
468,631
------------
BIOTECHNOLOGY--0.8%
Amgen, Inc. (b)..................................................... 3,300 345,056
------------
BROADCASTING (TELEVISION, RADIO & CABLE)--0.2%
Chris-Craft Industries, Inc. (b).................................... 1,500 72,281
------------
BUILDING MATERIALS--1.3%
Centex Construction Products, Inc................................... 600 24,375
Fleetwood Enterprises, Inc.......................................... 1,700 59,075
Johns Manville Corp................................................. 1,300 21,369
Lafarge Corp........................................................ 2,700 109,350
Lennar Corp......................................................... 500 12,625
Masco Corp.......................................................... 6,100 175,375
</TABLE>
See Notes to Financial Statements
77
<PAGE>
GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
BUILDING MATERIALS--CONTINUED
Owens Corning....................................................... 200 $ 7,087
Southdown, Inc...................................................... 400 23,675
Vulcan Materials Co................................................. 700 92,094
------------
525,025
------------
CHEMICALS (DIVERSIFIED)--0.5%
Goodrich Co., B.F. (The)............................................ 5,200 186,550
Polaris Industries, Inc............................................. 300 11,756
------------
198,306
------------
CHEMICALS (SPECIALTY)--0.4%
CMP Group, Inc...................................................... 3,400 64,175
Engelhard Corp...................................................... 400 7,800
International Speciality Products, Inc. (b)......................... 3,000 40,687
NL Industries, Inc.................................................. 500 7,094
Schulman (A.), Inc.................................................. 2,700 61,256
------------
181,012
------------
COMMUNICATIONS EQUIPMENT--1.7%
ECI Telecommunications Ltd.......................................... 800 28,500
Lucent Technologies, Inc............................................ 5,300 583,000
QUALCOMM, Inc. (b).................................................. 2,000 103,625
Tekelec............................................................. 800 13,250
------------
728,375
------------
COMPUTERS (HARDWARE)--4.7%
Apple Computer, Inc. (b)............................................ 3,400 139,187
Compaq Computer Corp................................................ 4,600 192,912
Dell Computer Corp. (b)............................................. 5,500 402,531
Gateway 2000, Inc. (b).............................................. 1,700 87,019
Hewlett-Packard Co.................................................. 4,100 280,081
International Business Machines Corp................................ 4,200 775,950
Sun Microsystems, Inc. (b).......................................... 900 77,062
------------
1,954,742
------------
COMPUTERS (NETWORKING)--1.3%
3Com Corp. (b)...................................................... 500 22,406
Cisco Systems, Inc. (b)............................................. 5,000 464,062
Novell, Inc......................................................... 2,500 45,312
Xircom, Inc. (b).................................................... 100 3,400
------------
535,180
------------
COMPUTERS (PERIPHERALS)--0.4%
EMC Corp. (b)....................................................... 1,800 153,000
Seagate Technology, Inc. (b)........................................ 800 24,200
------------
177,200
------------
COMPUTERS (SOFTWARE & SERVICES)--6.7%
Affiliated Computer Services, Inc. (b).............................. 500 22,500
Autodesk, Inc....................................................... 500 21,344
BMC Software, Inc. (b).............................................. 1,300 57,931
Computer Associates International, Inc.............................. 1,300 55,412
Computer Horizons Corp. (b)......................................... 1,300 34,612
Computer Sciences Corp. (b)......................................... 1,400 90,212
Compuware Corp. (b)................................................. 800 62,500
Comverse Technology, Inc. (b)....................................... 1,100 78,100
Electronic Arts, Inc. (b)........................................... 600 33,675
HBO & Co............................................................ 6,400 183,600
Mastech Corp. (b)................................................... 600 17,175
Microsoft Corp. (b)................................................. 10,200 1,414,612
NCR Corp. (b)....................................................... 3,100 129,425
Network Associates, Inc. (b)........................................ 500 33,125
Oracle Corp. (b).................................................... 5,000 215,625
Platinum Technology, Inc. (b)....................................... 500 9,562
Rational Software Corp. (b)......................................... 100 2,650
Reynolds & Reynolds Co. Class A..................................... 1,300 29,819
Siebel Systems, Inc. (b)............................................ 800 27,150
Sterling Commerce, Inc. (b)......................................... 1,400 63,000
Sterling Software, Inc. (b)......................................... 1,500 40,594
Unisys Corp. (b).................................................... 4,200 144,637
Whittman-Hart, Inc. (b)............................................. 1,200 33,150
------------
2,800,410
------------
CONSUMER (JEWELRY, NOVELTIES & GIFTS)--0.5%
Fortune Brands, Inc................................................. 4,200 132,825
Zale Corp. (b)...................................................... 1,900 $ 61,275
------------
194,100
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
CONSUMER FINANCE--0.6%
Capital One Financial Corp.......................................... 100 11,500
Countrywide Credit Industries, Inc.................................. 4,800 240,900
------------
252,400
------------
DISTRIBUTORS (FOOD & HEALTH)--0.5%
Cardinal Health, Inc................................................ 2,700 204,862
------------
ELECTRIC COMPANIES--5.9%
Ameren Electric Corp................................................ 2,400 102,450
Baltimore Gas & Electric Co......................................... 1,400 43,225
Central & South West Corp........................................... 13,700 375,894
Dominion Resources, Inc............................................. 6,400 299,200
Duke Energy Corp.................................................... 6,000 384,375
Edison International................................................ 9,700 270,387
FPL Group, Inc...................................................... 1,300 80,112
Hawaiian Electric Industries........................................ 2,100 84,525
Houston Industries, Inc............................................. 8,300 266,637
LG&E Energy Corp.................................................... 13,700 387,881
Minnesota Power, Inc................................................ 3,600 158,400
OGE Energy Corp..................................................... 700 20,300
Puget Sound Energy, Inc............................................. 300 8,362
------------
2,481,748
------------
ELECTRICAL EQUIPMENT--2.8%
Briggs & Stratton Corp.............................................. 1,400 69,825
General Electric Co................................................. 9,600 979,800
Honeywell, Inc...................................................... 1,800 135,562
------------
1,185,187
------------
ELECTRONICS (INSTRUMENTATION)--0.4%
EG&G, Inc........................................................... 4,900 136,281
General Instrument Corp. (b)........................................ 600 20,362
Smart Modular Technologies, Inc..................................... 500 13,875
------------
170,518
------------
ELECTRONICS (SEMICONDUCTORS)--2.7%
Intel Corp.......................................................... 8,600 1,019,637
Texas Instruments, Inc.............................................. 1,200 102,675
Vitesse Semiconductor Corp. (b)..................................... 300 13,687
------------
1,135,999
------------
ENGINEERING & CONSTRUCTION--0.2%
Fluor Corp.......................................................... 2,200 93,637
------------
ENTERTAINMENT--0.3%
Royal Caribbean Cruises Ltd......................................... 1,600 59,200
Viacom, Inc. Class B (b)............................................ 900 66,600
------------
125,800
------------
FINANCIAL (DIVERSIFIED)--3.6%
American General Corp............................................... 1,100 85,800
Citigroup, Inc...................................................... 4,200 207,900
Doral Financial Corp................................................ 3,700 81,862
Fannie Mae.......................................................... 9,500 703,000
Freddie Mac......................................................... 1,100 70,881
Morgan Stanley Dean Witter & Co..................................... 4,700 333,700
Old Kent Financial Corp............................................. 400 18,600
------------
1,501,743
------------
FOODS--1.0%
Earthgrains Co. (The)............................................... 1,700 52,594
Flowers Industries, Inc............................................. 900 21,544
Quaker Oats Co...................................................... 5,800 345,100
------------
419,238
------------
HEALTH CARE (DIVERSIFIED)--3.6%
Abbott Laboratories................................................. 3,200 156,800
American Home Products Corp......................................... 300 16,894
AmeriSource Health Corp. Class A (b)................................ 200 13,000
Bristol-Myers Squibb Co............................................. 2,500 334,531
Johnson & Johnson................................................... 1,900 159,362
McKesson Corp....................................................... 2,200 173,938
Mylan Laboratories, Inc............................................. 1,500 47,250
</TABLE>
See Notes to Financial Statements
78
<PAGE>
GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
HEALTH CARE (DIVERSIFIED)--CONTINUED
Warner-Lambert Co................................................... 8,300 $ 624,056
------------
1,525,831
------------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--4.8%
Barr Laboratories, Inc. (b)......................................... 500 24,000
Biogen, Inc. (b).................................................... 300 24,900
Genentech, Inc. (b)................................................. 3,300 262,969
Lilly (Eli) & Co.................................................... 4,300 382,163
Medicis Pharmaceutical Corp. Class A (b)............................ 400 23,850
Merck & Co., Inc.................................................... 1,800 265,838
Pfizer, Inc......................................................... 2,500 313,594
Pharmacia & Upjohn, Inc............................................. 5,100 288,788
Schering-Plough Corp................................................ 7,800 430,950
------------
2,017,052
------------
HEALTH CARE (HOSPITAL MANAGEMENT)--0.4%
Pacificare Health Systems, Inc. Class B (b)......................... 2,100 166,950
------------
HEALTH CARE (LONG TERM CARE)--0.2%
Omnicare, Inc....................................................... 2,500 86,875
------------
HEALTH CARE (MANAGED CARE)--0.4%
Humana, Inc. (b).................................................... 1,100 19,594
Trigon Healthcare, Inc. (b)......................................... 1,100 41,044
United Healthcare Corp.............................................. 300 12,919
Wellpoint Health Networks, Inc. (b)................................. 1,300 113,100
------------
186,657
------------
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)--1.1%
Allegiance Corp..................................................... 1,600 74,600
Allergan, Inc....................................................... 1,700 110,075
Bausch & Lomb, Inc.................................................. 500 30,000
Bergen Brunswig Corp. Class A....................................... 2,200 76,725
Hillenbrand Industries, Inc......................................... 1,800 102,375
Mallinckrodt, Inc................................................... 600 18,488
Visx, Inc. (b)...................................................... 400 34,975
------------
447,238
------------
HEALTH CARE (SPECIALIZED SERVICES)--0.1%
Total Renal Care Holdings, Inc. (b)................................. 1,300 38,431
------------
HOMEBUILDING--0.4%
Centex Corp......................................................... 2,400 108,150
D. R. Horton, Inc................................................... 600 13,800
Kaufman & Broad Home Corp........................................... 400 11,500
Pulte Corp.......................................................... 1,600 44,500
------------
177,950
------------
HOUSEHOLD FURNITURE & APPLIANCES--0.9%
Maytag Corp......................................................... 1,400 87,150
Premark International, Inc.......................................... 5,600 193,900
Whirlpool Corp...................................................... 1,800 99,675
------------
380,725
------------
HOUSEHOLD PRODUCTS (NON-DURABLES)--1.0%
Church & Dwight, Inc................................................ 300 10,781
Procter & Gamble Co. (The).......................................... 4,300 392,644
------------
403,425
------------
HOUSEWARES--0.2%
Tupperware Corp..................................................... 4,500 73,969
------------
INSURANCE (LIFE/HEALTH)--1.5%
Aetna, Inc.......................................................... 1,600 125,800
Lincoln National Corp............................................... 3,900 319,069
Transamerica Corp................................................... 1,500 173,250
------------
618,119
------------
INSURANCE (MULTI-LINE)--1.3%
Ambac Financial Group, Inc.......................................... 800 48,150
American International Group, Inc................................... 500 48,313
CIGNA Corp.......................................................... 5,500 425,219
Everest Reinsurance Holdings, Inc................................... 300 11,681
HCC Insurance Holdings.............................................. 1,200 21,150
------------
554,513
------------
INSURANCE (PROPERTY-CASUALTY)--1.9%
Allstate Corp. (The)................................................ 15,700 606,413
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
INSURANCE (PROPERTY-CASUALTY)--CONTINUED
Fidelity National Financial, Inc.................................... 1,540 $ 46,970
First American Financial Corp. (The)................................ 2,200 70,675
LandAmerica Financial Group, Inc.................................... 1,000 55,813
Reliance Group Holdings, Inc........................................ 1,500 19,313
------------
799,184
------------
INSURANCE BROKERS--1.3%
Arthur J. Gallagher & Co............................................ 2,600 114,725
Marsh & McLennan Companies, Inc..................................... 7,100 414,906
------------
529,631
------------
IRON & STEEL--0.1%
Nucor Corp.......................................................... 1,400 60,550
------------
MACHINERY (DIVERSIFIED)--0.9%
Ingersoll-Rand Co................................................... 5,400 253,463
Manitowoc Co., Inc. (The)........................................... 1,000 44,375
York International Corp............................................. 1,900 77,544
------------
375,382
------------
MANUFACTURING (DIVERSIFIED)--2.8%
AlliedSignal, Inc................................................... 300 13,294
Crane Co............................................................ 2,800 84,525
McDermott International, Inc........................................ 300 7,406
Pentair, Inc........................................................ 1,700 67,681
Tredegar Industries, Inc............................................ 1,100 24,750
Tyco International Ltd.............................................. 5,200 392,275
United Technologies Corp............................................ 5,500 598,125
------------
1,188,056
------------
METALS MINING--0.1%
Placer Dome, Inc.................................................... 2,600 29,900
------------
NATURAL GAS--3.3%
El Paso Energy Corp................................................. 1,600 55,700
Enron Corp.......................................................... 1,100 62,769
K N Energy, Inc..................................................... 200 7,275
Keyspan Corp........................................................ 9,500 294,500
Sempra Energy....................................................... 17,800 451,675
Southwest Gas Corp.................................................. 7,200 193,500
UGI Corp............................................................ 800 19,000
Utilicorp United, Inc............................................... 8,200 300,838
------------
1,385,257
------------
OFFICE EQUIPMENT & SUPPLIES--0.2%
Miller (Herman), Inc................................................ 700 18,813
United Stationers, Inc. (b)......................................... 3,100 80,600
------------
99,413
------------
OIL & GAS (DRILLING & EQUIPMENT)--0.5%
Diamond Offshore Drilling, Inc...................................... 600 14,213
Halliburton Co...................................................... 700 20,738
Schlumberger Ltd.................................................... 500 23,063
Tidewater, Inc...................................................... 2,800 64,925
Transocean Offshore, Inc............................................ 3,500 93,844
------------
216,783
------------
OIL & GAS (EXPLORATION & PRODUCTION)--0.1%
MDU Resources Group, Inc............................................ 900 23,681
------------
OIL & GAS (REFINING & MARKETING)--0.3%
Imperial Oil Ltd.................................................... 8,900 142,956
------------
OIL (DOMESTIC INTEGRATED)--0.2%
Atlantic Richfield Co............................................... 900 58,725
Coastal Corp........................................................ 400 13,975
------------
72,700
------------
OIL (INTERNATIONAL INTEGRATED)--1.0%
Exxon Corp.......................................................... 5,700 416,813
------------
PAPER & FOREST PRODUCTS--0.2%
Chesapeake Corp..................................................... 2,200 81,125
------------
PHOTOGRAPHY/IMAGING--1.5%
Eastman Kodak Co.................................................... 7,700 554,400
Xerox Corp.......................................................... 600 70,800
------------
625,200
------------
</TABLE>
See Notes to Financial Statements
79
<PAGE>
GROWTH AND INCOME SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
PUBLISHING (NEWSPAPERS)--0.2%
Hollinger International, Inc........................................ 1,400 $ 19,513
Knight-Ridder, Inc.................................................. 1,600 81,800
------------
101,313
------------
RETAIL (BUILDING SUPPLIES)--0.9%
Home Depot, Inc. (The).............................................. 4,300 263,106
Lowe's Companies, Inc............................................... 2,100 107,494
------------
370,600
------------
RETAIL (COMPUTERS & ELECTRONICS)--0.3%
Best Buy Co., Inc. (b).............................................. 1,800 110,475
Tandy Corp.......................................................... 400 16,475
------------
126,950
------------
RETAIL (DEPARTMENT STORES)--0.0%
Federated Department Stores, Inc. (b)............................... 200 8,713
------------
RETAIL (FOOD CHAINS)--0.2%
Supervalu, Inc...................................................... 3,500 98,000
------------
RETAIL (GENERAL MERCHANDISE)--2.6%
Dayton Hudson Corp.................................................. 700 37,975
Kmart Corp. (b)..................................................... 4,800 73,500
Loews Corp.......................................................... 1,100 108,075
Ross Stores, Inc.................................................... 1,100 43,313
Wal-Mart Stores, Inc................................................ 10,200 830,663
------------
1,093,526
------------
RETAIL (SPECIALTY-APPAREL)--0.6%
Gap, Inc. (The)..................................................... 1,950 109,688
TJX Companies, Inc. (The)........................................... 4,500 130,500
------------
240,188
------------
SAVINGS & LOAN COMPANIES--0.2%
Dime Bancorp, Inc................................................... 1,100 29,081
Golden West Financial Corp.......................................... 500 45,844
------------
74,925
------------
SERVICES (ADVERTISING/MARKETING)--0.4%
Omnicom Group, Inc.................................................. 1,300 75,400
Snyder Communications Corp., Inc. (b)............................... 2,800 94,500
------------
169,900
------------
SERVICES (COMMERCIAL & CONSUMER)--2.1%
American Management Systems, Inc. (b)............................... 1,000 40,000
Deluxe Corp......................................................... 11,000 402,188
Hertz Corp. Class A................................................. 1,500 68,438
Interim Services, Inc. (b).......................................... 700 16,363
Ogden Corp.......................................................... 7,900 197,994
Robert Half International, Inc. (b)................................. 500 22,344
Romac International, Inc. (b)....................................... 700 15,575
Sylvan Learning Systems Inc......................................... 400 12,200
Viad Corp........................................................... 3,500 106,313
------------
881,415
------------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.1%
AirTouch Communications, Inc. (b)................................... 500 36,063
------------
TELECOMMUNICATIONS (LONG DISTANCE)--3.2%
AT&T Corp........................................................... 17,200 1,294,300
MCI WorldCom, Inc. (b).............................................. 500 35,875
------------
1,330,175
------------
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C> <C>
TELEPHONE--3.6%
Ameritech Corp...................................................... 2,400 $ 152,100
Bell Atlantic Corp.................................................. 5,100 289,744
BellSouth Corp...................................................... 6,600 329,175
GTE Corp............................................................ 3,600 242,775
SBC Communications, Inc............................................. 6,200 332,475
US West, Inc........................................................ 2,700 174,488
------------
1,520,757
------------
TEXTILES (APPAREL)--0.6%
Fruit of The Loom, Inc. Class A (b)................................. 1,400 19,338
Jones Apparel Group, Inc. (b)....................................... 2,000 44,125
Tommy Hilfiger Corp. (b)............................................ 1,300 78,000
V.F. Corp........................................................... 2,500 117,188
------------
258,651
------------
TOBACCO--0.9%
Philip Morris Companies, Inc........................................ 6,100 326,350
Universal Corp...................................................... 1,800 63,225
------------
389,575
------------
TRUCKS & PARTS--0.1%
PACCAR, Inc......................................................... 800 32,900
------------
TOTAL COMMON STOCKS
(Identified cost $35,661,759)................................................ 40,576,292
------------
FOREIGN COMMON STOCKS--0.8%
PERSONAL CARE--0.4%
Unilever NV NY Registered Shares (Netherlands)...................... 1,800 149,288
------------
TELEPHONE--0.4%
Northern Telecom Ltd. (Canada)...................................... 3,600 180,450
------------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $304,590)................................................... 329,738
------------
UNIT INVESTMENT TRUSTS--1.5%
S&P 500 Depository Receipts......................................... 5,200 639,600
------------
TOTAL UNIT INVESTMENT TRUSTS
(Identified cost $533,589)................................................... 639,600
------------
TOTAL LONG-TERM INVESTMENTS--99.2%
(Identified cost $36,499,938)................................................ 41,545,630
------------
</TABLE>
<TABLE>
<CAPTION>
STANDARD
& POOR'S PAR
RATING VALUE
(UNAUDITED) (000)
----------- ------
<S> <C> <C> <C>
SHORT-TERM OBLIGATIONS--2.4%
COMMERCIAL PAPER--2.4%
Receivables Capital Corp. 5.15%, 1/4/99......... A-1+ $ 980 979,579
---------------
TOTAL SHORT-TERM OBLIGATIONS
(Identified cost $979,579)................................................... 979,579
---------------
TOTAL INVESTMENTS--101.6%
(Identified cost $37,479,517)................................................ 42,525,209(a)
Cash and receivables, less liabilities--(1.6%)............................... (665,060)
---------------
NET ASSETS--100.0%............................................................. $ 41,860,149
---------------
---------------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $5,759,197 and gross
depreciation of $794,280 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$37,560,292.
(b) Non-income producing.
See Notes to Financial Statements
80
<PAGE>
GROWTH AND INCOME SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$37,479,517).............................................. $ 42,525,209
Cash........................................................ 636
Receivables
Fund shares sold.......................................... 146,427
Investment securities sold................................ 82,215
Dividends and interest.................................... 53,339
Prepaid expenses............................................ 669
-------------
Total assets............................................ 42,808,495
-------------
LIABILITIES
Payables
Investment securities purchased........................... 866,058
Fund shares repurchased................................... 25,159
Investment advisory fee................................... 4,017
Financial agent fee....................................... 5,975
Trustees' fee............................................. 5,044
Accrued expenses............................................ 42,093
-------------
Total liabilities....................................... 948,346
-------------
NET ASSETS.................................................. $ 41,860,149
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... 37,248,956
Distribution in excess of net investment income........... (4,389)
Accumulated net realized loss............................. (430,110)
Net unrealized appreciation............................... 5,045,692
-------------
NET ASSETS.................................................. $ 41,860,149
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 3,490,294
-------------
-------------
Net asset value and offering price per share................ $ 11.99
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 264,843
Interest.................................................. 28,154
-------------
Total investment income................................. 292,997
-------------
EXPENSES
Investment advisory fee................................... 109,232
Financial agent fee....................................... 33,806
Custodian................................................. 38,249
Professional.............................................. 13,865
Printing.................................................. 13,069
Trustees.................................................. 12,657
Miscellaneous............................................. 8,434
-------------
Total expenses.......................................... 229,312
Less expenses borne by investment adviser............... (96,206)
-------------
Net expenses............................................ 133,106
-------------
NET INVESTMENT INCOME....................................... 159,891
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (437,760)
Net realized gains on written options..................... 7,393
Net change in unrealized appreciation (depreciation) on
investments............................................. 5,045,692
-------------
NET GAIN ON INVESTMENTS..................................... 4,615,325
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 4,775,216
-------------
-------------
</TABLE>
See Notes to Financial Statements
81
<PAGE>
GROWTH AND INCOME SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 159,891
Net realized gain (loss).................................. (430,367)
Net change in unrealized appreciation (depreciation)...... 5,045,692
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 4,775,216
----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (159,891)
In excess of net investment income........................ (4,132)
----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (164,023)
----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (4,102,319 shares).......... 43,754,814
Net asset value of shares issued from reinvestment of
distributions (14,099 shares)........................... 164,023
Cost of shares repurchased (626,124 shares)............... (6,669,881)
----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 37,248,956
----------------
NET INCREASE IN NET ASSETS................................ 41,860,149
NET ASSETS
Beginning of period....................................... --
----------------
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME OF ($4,389)).......................... $41,860,149
----------------
----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM INCEPTION
3/2/98 TO
12/31/98
--------------
<S> <C>
Net asset value, beginning of period......... $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)............... 0.05(3)
Net realized and unrealized gain (loss).... 1.99
-------
TOTAL FROM INVESTMENT OPERATIONS......... 2.04
-------
LESS DISTRIBUTIONS
Dividends from net investment income....... (0.05)
In excess of net investment income......... --
-------
TOTAL DISTRIBUTIONS...................... (0.05)
-------
CHANGE IN NET ASSET VALUE.................... 1.99
-------
NET ASSET VALUE, END OF PERIOD............... $11.99
-------
-------
Total return................................. 20.45%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)........ $41,860
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses......................... 0.85%(1)
Net investment income...................... 1.02%(1)
Portfolio turnover rate...................... 81%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.05
per share.
See Notes to Financial Statements
82
<PAGE>
VALUE EQUITY SERIES
INVESTOR PROFILE
Phoenix Value Equity Series is appropriate for investors seeking long-term
capital appreciation.
INVESTMENT ADVISER'S REPORT
Since its inception on March 2 through December 31, 1998, the Fund returned
10.79% compared with a return of 18.95% for the S&P 500 Index(1) for the same
period. All performance figures assume reinvestment of distributions and are net
of sales charges.
After months of unprecedented volatility, the U.S. stock market ended 1998
with the S&P 500 Index posting double-digit gains for the fourth year in a row.
However, this broad measure of stock market performance does not reflect the
wide disparity in performance of large versus small stocks or growth versus
value. While the S&P 500 showed impressive gains, the Russell 2000 Index(2), a
measure of small stocks, was down (2.55)% for the year. And, 1998 can be
characterized as the year when value stocks were left behind as investors sought
growth and liquidity at almost any price. The S&P 500 Barra Growth Index(3) rose
42.1% for the year, but the S&P Barra Value Index(4) lagged substantially and
returned only 13.8% for the 12 months ended December 31, 1998.
Fund performance was held back as we maintained our investment discipline,
focusing on heavily discounted, low-expectation stocks that reflect our strong
value bias. For example, we continued to overweight the financial sector, which
underperformed significantly as investors reacted to events in Asia and Brazil.
Individual stocks also held back performance. Philip Morris came under pressure
once again, and Allied Signal's tender offer for UTI negatively affected the
stock's price. Some of the Fund's strong performers included Emulex, IBM,
Compaq, Dayton-Hudson and Sun Microsystems.
OUTLOOK
We will continue to follow our disciplined, classic value approach. The
Fund's primary positions will remain attractively valued holdings in technology,
banks and financial institutions with global franchises, telecommunications and
retailers that we believe possess recession-resistant characteristics.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VALUE EQUITY SERIES S&P 500 INDEX(1)
<S> <C> <C>
03/02/1998 $10,000.00 $10,000.00
12/31/1998 $11,079.20 $11,895.30
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- - ----------------------------------------------------------------------
Phoenix Value Equity Series 10.79%
- - ----------------------------------------------------------------------
S&P 500 Index(1) 18.95%
- - ----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
(2) The Russell 2000 Index is an unmanaged, commonly used measure of performance
of small stocks. The Index is not available for direct investment.
(3) The S&P 500 Barra Growth Index is an unmanaged, commonly used measure of
large-cap, growth-oriented companies. The Index is not available for direct
investment.
(4) The S&P 500 Barra Value Index is an unmanaged, commonly used measure of
large-cap, value-oriented stocks. The Index is not available for direct
investment.
83
<PAGE>
VALUE EQUITY SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
COMMON STOCKS--84.5%
AEROSPACE/DEFENSE--0.3%
Boeing Co. (The).................................................... 1,000 $ 32,625
-----------
BANKS (MAJOR REGIONAL)--1.9%
Bank One Corp....................................................... 2,000 102,125
Wells Fargo & Co.................................................... 2,000 79,875
-----------
182,000
-----------
BANKS (MONEY CENTER)--4.4%
BankAmerica Corp.................................................... 3,200 192,400
Chase Manhattan Corp. (The)......................................... 3,300 224,606
-----------
417,006
-----------
BEVERAGES (ALCOHOLIC)--1.4%
Anheuser-Busch Companies, Inc....................................... 2,000 131,250
-----------
BIOTECHNOLOGY--1.1%
Cell Genesys, Inc. (b).............................................. 18,000 108,000
-----------
COMMUNICATIONS EQUIPMENT--2.9%
Motorola, Inc....................................................... 3,000 183,187
Terayon Communications Systems, Inc. (b)............................ 2,500 92,500
-----------
275,687
-----------
COMPUTERS (HARDWARE)--8.8%
Compaq Computer Corp................................................ 4,800 201,300
Data General Corp. (b).............................................. 8,000 131,500
International Business Machines Corp................................ 1,100 203,225
Sun Microsystems, Inc. (b).......................................... 3,500 299,687
-----------
835,712
-----------
COMPUTERS (NETWORKING)--2.5%
Emulex Corp. (b).................................................... 6,000 240,000
-----------
COMPUTERS (PERIPHERALS)--1.2%
Hutchinson Technology, Inc. (b)..................................... 1,500 53,437
Maxtor Corp. (b).................................................... 4,000 56,000
-----------
109,437
-----------
COMPUTERS (SOFTWARE & SERVICES)--0.8%
Black Box Corp. (b)................................................. 2,000 75,750
-----------
CONSUMER FINANCE--0.6%
Countrywide Credit Industries, Inc.................................. 1,200 60,225
-----------
ELECTRICAL EQUIPMENT--1.6%
Honeywell, Inc...................................................... 2,000 150,625
-----------
ELECTRONICS (COMPONENT DISTRIBUTORS)--0.9%
CHS Electronics, Inc. (b)........................................... 5,000 84,687
-----------
ELECTRONICS (DEFENSE)--0.6%
Raytheon Co. Class B (b)............................................ 1,000 53,250
-----------
ELECTRONICS (SEMICONDUCTORS)--3.6%
Advanced Micro Devices, Inc. (b).................................... 1,500 43,406
Dallas Semiconductor Corp........................................... 3,000 122,250
Intel Corp.......................................................... 1,500 177,844
-----------
343,500
-----------
ENTERTAINMENT--2.3%
Royal Caribbean Cruises Ltd......................................... 3,300 122,100
Walt Disney Co. (The)............................................... 3,300 99,000
-----------
221,100
-----------
FINANCIAL (DIVERSIFIED)--10.9%
American Express Co................................................. 1,400 143,150
Citigroup, Inc...................................................... 4,000 198,000
Fannie Mae.......................................................... 3,000 222,000
Freddie Mac......................................................... 3,000 193,312
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
FINANCIAL (DIVERSIFIED)--CONTINUED
SLM Holding Corp.................................................... 5,800 $ 278,400
-----------
1,034,862
-----------
HEALTH CARE (DIVERSIFIED)--1.3%
Bristol-Myers Squibb Co............................................. 250 33,453
Johnson & Johnson................................................... 1,100 92,262
-----------
125,715
-----------
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS)--1.9%
Lilly (Eli) & Co.................................................... 2,000 177,750
-----------
HEALTH CARE (MANAGED CARE)--1.2%
Foundation Health Systems, Inc Class A (b).......................... 4,200 50,137
Humana, Inc. (b).................................................... 3,500 62,344
-----------
112,481
-----------
INSURANCE (MULTI-LINE)--4.4%
Ambac Financial Group, Inc.......................................... 1,300 78,244
American International Group, Inc................................... 3,000 289,875
CIGNA Corp.......................................................... 700 54,119
-----------
422,238
-----------
INVESTMENT BANKING/BROKERAGE--1.2%
Merrill Lynch & Co., Inc............................................ 1,700 113,475
-----------
LEISURE TIME (PRODUCTS)--0.5%
Mattel, Inc......................................................... 2,200 50,187
-----------
MANUFACTURING (DIVERSIFIED)--1.3%
AlliedSignal, Inc................................................... 1,500 66,469
Illinios Tool Works, Inc............................................ 1,000 58,000
-----------
124,469
-----------
MANUFACTURING (SPECIALIZED)--2.9%
Diebold, Inc........................................................ 7,700 274,794
-----------
OFFICE EQUIPMENT & SUPPLIES--1.9%
Pitney Bowes, Inc................................................... 2,800 184,975
-----------
RAILROADS--0.7%
Union Pacific Corp.................................................. 1,500 67,594
-----------
REITS--1.8%
LaSalle Hotel Properties............................................ 7,500 77,813
Sunstone Hotel Investors, Inc....................................... 10,000 94,375
-----------
172,188
-----------
RESTAURANTS--1.8%
McDonald's Corp..................................................... 2,300 176,238
-----------
RETAIL (GENERAL MERCHANDISE)--1.3%
Dayton Hudson Corp.................................................. 2,200 119,350
-----------
RETAIL (SPECIALTY)--1.4%
Claire's Stores, Inc................................................ 4,400 90,200
Talbots, Inc. (The)................................................. 1,500 47,063
-----------
137,263
-----------
SAVINGS & LOAN COMPANIES--0.7%
Washington Mutual, Inc.............................................. 1,700 64,919
-----------
SERVICES (COMMERCIAL & CONSUMER)--0.6%
C-Cube Microsystems, Inc. (b)....................................... 2,000 54,250
-----------
SERVICES (DATA PROCESSING)--0.9%
First Data Corp..................................................... 2,700 85,556
-----------
SPECIALTY PRINTING--1.0%
World Color Press, Inc. (b)......................................... 3,000 91,313
-----------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--1.2%
Iridium World Communications Ltd. Class A (b)....................... 3,000 118,688
-----------
</TABLE>
See Notes to Financial Statements
84
<PAGE>
VALUE EQUITY SERIES
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)--5.2%
AT&T Corp........................................................... 3,300 $ 248,325
MCI WorldCom, Inc. (b).............................................. 3,500 251,125
-----------
499,450
-----------
TELEPHONE--3.3%
BellSouth Corp...................................................... 2,600 129,675
GTE Corp............................................................ 2,000 134,875
SBC Communications, Inc............................................. 1,000 53,625
-----------
318,175
-----------
TEXTILES (APPAREL)--0.3%
Supreme International Corp. (b)..................................... 2,000 24,000
-----------
TOBACCO--1.9%
Philip Morris Companies, Inc........................................ 3,400 181,900
-----------
TOTAL COMMON STOCKS
(Identified cost $7,090,148)................................................ 8,052,684
-----------
FOREIGN COMMON STOCKS--2.4%
PERSONAL CARE--1.7%
Unilever NV NY Registered Shares (Netherlands)...................... 2,000 165,875
-----------
TELECOMMUNICATIONS (CELLULAR/WIRELESS)--0.2%
Telesp Celular Participacoes SA ADR (Brazil) (b).................... 1,100 19,250
-----------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS (LONG DISTANCE)--0.3%
Embratel Participacoes SA ADR (Brazil) (b).......................... 1,800 $ 25,087
-----------
TELEPHONE--0.2%
Telesp Participacoes SA ADR (Brazil) (b)............................ 900 19,913
-----------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $228,084).................................................. 230,125
-----------
UNIT INVESTMENT TRUSTS--13.4%
AMEX Consumer Staples Select Sector Depository Receipts.............
7,000 190,094
AMEX Financial Select Sector Depository Receipts.................... 12,100 283,594
AMEX Technology Select Sector Depository Receipts................... 11,600 378,450
S&P 500 Depository Receipts......................................... 3,500 430,500
-----------
1,282,638
-----------
TOTAL UNIT INVESTMENT TRUSTS
(Identified cost $1,250,626)................................................ 1,282,638
-----------
TOTAL INVESTMENTS--100.3%
(Identified cost $8,568,858)................................................ 9,565,447(a)
Cash and receivables, less liabilities--(0.3%).............................. (32,460)
-----------
NET ASSETS--100.0%............................................................ $ 9,532,987
-----------
-----------
</TABLE>
(a) Federal Income Tax Information: Net unrealized appreciation of investment
securities is comprised of gross appreciation of $1,283,776 and gross
depreciation of $293,727 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$8,575,398.
(b) Non-income producing.
See Notes to Financial Statements
85
<PAGE>
VALUE EQUITY SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
8,568,858)................................................ $ 9,565,447
Cash........................................................ 5,034
Receivables
Dividends and interest.................................... 10,545
Investment securities sold................................ 8,964
Prepaid expenses............................................ 155
-------------
Total assets............................................ 9,590,145
-------------
LIABILITIES
Payables
Fund shares repurchased................................... 778
Investment advisory fee................................... 17,482
Trustees' fee............................................. 5,000
Financial agent fee....................................... 2,228
Accrued expenses............................................ 31,670
-------------
Total liabilities....................................... 57,158
-------------
NET ASSETS.................................................. $ 9,532,987
-------------
-------------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... 8,647,424
Distribution in excess of net investment income........... (388)
Accumulated net realized loss............................. (110,638)
Net unrealized appreciation............................... 996,589
-------------
NET ASSETS.................................................. $ 9,532,987
-------------
-------------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 864,222
-------------
-------------
Net asset value and offering price per share................ $ 11.03
-------------
-------------
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 62,512
Interest.................................................. 13,297
Foreign taxes withheld.................................... (705)
---------
Total investment income................................. 75,104
---------
EXPENSES
Investment advisory fee................................... 30,941
Financial agent fee....................................... 23,130
Professional.............................................. 13,521
Trustees.................................................. 12,602
Printing.................................................. 12,129
Custodian................................................. 11,840
Miscellaneous............................................. 4,965
---------
Total expenses.......................................... 109,128
Less expense borne by investment adviser................ (71,521)
---------
Net expenses............................................ 37,607
---------
NET INVESTMENT INCOME....................................... 37,497
---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (110,638)
Net change in unrealized appreciation (depreciation) on
investments............................................. 996,589
---------
NET GAIN ON INVESTMENTS..................................... 885,951
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 923,448
---------
---------
</TABLE>
See Notes to Financial Statements
86
<PAGE>
VALUE EQUITY SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998 TO
DECEMBER 31,
1998
----------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 37,497
Net realized gain (loss).................................. (110,638)
Net change in unrealized appreciation (depreciation)...... 996,589
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... 923,448
----------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (37,497)
In excess of net investment income........................ (388)
----------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (37,885)
----------------
FROM SHARE TRANSACTIONS
Proceeds from sales of shares (990,498 shares)............ 9,960,882
Net asset value of shares issued from reinvestment of
distributions (3,586 shares)............................ 37,885
Cost of shares repurchased (129,862 shares)............... (1,351,343)
----------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 8,647,424
----------------
NET INCREASE IN NET ASSETS................................ 9,532,987
NET ASSETS
Beginning of period....................................... --
----------------
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME OF ($388))............................ $9,532,987
----------------
----------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM INCEPTION
3/2/98 TO
12/31/98
--------------
<S> <C>
Net asset value, beginning of
period............................ $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)...... 0.05(3)
Net realized and unrealized gain
(loss).......................... 1.03
-------
TOTAL FROM INVESTMENT
OPERATIONS..................... 1.08
-------
LESS DISTRIBUTIONS
Dividends from net investment
income.......................... (0.05)
In excess of net investment
income.......................... --
-------
TOTAL DISTRIBUTIONS............. (0.05)
-------
CHANGE IN NET ASSET VALUE........... 1.03
-------
NET ASSET VALUE, END OF PERIOD...... $11.03
-------
-------
Total return........................ 10.79%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(thousands)....................... $9,533
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses................ 0.85%(1)
Net investment income............. 0.85%(1)
Portfolio turnover rate............. 77%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.13
per share.
See Notes to Financial Statements
87
<PAGE>
SCHAFER MID-CAP VALUE SERIES
INVESTOR PROFILE
The Fund is appropriate for investors seeking long-term capital
appreciation. Investors should note that the Fund may invest in
mid-capitalization stocks, which may involve greater risks, including greater
price volatility, less liquidity and increased competition.
INVESTMENT ADVISER'S REPORT
From the Fund's inception on March 2 through December 31, 1998, the Fund
returned (11.37)% compared with a return of 18.95% for the S&P 500 Index.(1) All
performance figures assume reinvestment of distributions and are net of sales
charges.
The market's strong performance, as measured by the S&P 500's 28.76% return
for the year, masked an important split in the market. Investors pursued safety
in well-known, large-cap companies, while selling small- and mid-cap stocks as
global events raised investors' concerns. Our investment discipline led us to
continue to buy more mid-cap stocks and sell large-cap as we continued to see
their valuations rise. During the reporting period, we sold Progressive Corp.,
Northern Trust and SBC Communications. These positions were replaced with
mid-cap stocks, with price-to-earnings ratios well below market levels.
Not only do these mid-cap stocks trade more cheaply than their large-cap
counterparts, but they also typically have better near-term earnings growth
prospects coupled with less exposure to foreign economies than most large-cap
companies. Unfortunately, thus far, low valuations have not led to
outperformance. It is possible that struggling foreign economies may not worsen,
but it could be a long time before things really start improving for many of the
involved countries and the companies doing business there. For this reason, we
sold Cummins Engine and Asia Pulp & Paper, both companies with significant sales
to Asia.
OUTLOOK
Looking forward, we think the market will continue to react in a volatile
manner to economic news. We also believe the long-running neglect of mid- and
small-cap stocks by investors may soon begin to reverse. We are positioned very
well, in our opinion, to take advantage of such a change in investor sentiment
should it begin.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SCHAEFER MID-CAP VALUE SERIES S&P 500 INDEX(1)
<S> <C> <C>
03/02/1998 $10,000.00 $10,000.00
12/31/1998 $8,862.77 $11,895.30
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURNS FOR PERIODS ENDING 12/31/98
FROM
INCEPTION
3/2/98 TO
12/31/98
<S> <C>
- - ----------------------------------------------------------------------
Schafer Mid-Cap Value Series (11.37 )%
- - ----------------------------------------------------------------------
S&P 500 Index(1) 18.95%
- - ----------------------------------------------------------------------
</TABLE>
This chart assumes an initial gross investment of $10,000 made on 3/2/98.
Returns shown include the reinvestment of all distributions at net asset value,
and the change in share price for the stated period. Returns indicate past
performance, which is not predictive of future performance. Investment return
and net asset value will fluctuate so that your shares, when redeemed, may be
worth more or less than the original cost. Foreign investing involves special
risks such as currency fluctuation and less public disclosure, as well as
economic and political risks.
(1) The S&P 500 Index is an unmanaged, commonly used measure of stock market
total return performance. The Index is not available for direct investment.
88
<PAGE>
SCHAFER MID CAP VALUE SERIES
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
COMMON STOCKS--81.5%
AIR FREIGHT--3.6%
FDX Corp.(b)........................................................ 3,200 $ 284,800
-----------
AUTO PARTS & EQUIPMENT--2.7%
Borg-Warner Automotive, Inc......................................... 3,800 212,087
-----------
AUTOMOBILES--2.2%
Ford Motor Co....................................................... 3,000 176,062
-----------
BANKS (MAJOR REGIONAL)--4.9%
Mellon Bank Corp.................................................... 2,800 192,500
Summit Bancorp...................................................... 4,500 196,594
-----------
389,094
-----------
BANKS (MONEY CENTER)--5.0%
BankAmerica Corp.................................................... 2,800 168,350
Chase Manhattan Corp. (The)......................................... 3,300 224,606
-----------
392,956
-----------
BUILDING MATERIALS--9.1%
Armstrong World Industries, Inc..................................... 3,100 186,969
Lafarge Corp........................................................ 5,100 206,550
Owens Corning....................................................... 4,100 145,294
Southdown, Inc...................................................... 3,000 177,562
-----------
716,375
-----------
COMPUTERS (PERIPHERALS)--2.7%
Storage Technology Corp.(b)......................................... 5,900 209,819
-----------
ELECTRICAL EQUIPMENT--2.1%
Harman International Industries, Inc................................ 4,400 167,750
-----------
ELECTRONICS (COMPONENT DISTRIBUTORS)--6.9%
Arrow Electronics, Inc.(b).......................................... 11,100 296,231
Avnet, Inc.......................................................... 4,100 248,050
-----------
544,281
-----------
FOODS--2.6%
IBP, Inc............................................................ 7,100 206,788
-----------
HOMEBUILDING--3.1%
Champion Enterprises, Inc.(b)....................................... 9,000 246,375
-----------
INSURANCE (MULTI-LINE)--4.8%
Berkley (W.R.) Corp................................................. 5,500 187,344
Old Republic International Corp..................................... 8,500 191,250
-----------
378,594
-----------
INVESTMENT BANKING/BROKERAGE--5.9%
Merrill Lynch & Co., Inc............................................ 3,800 253,650
Paine Webber Group, Inc............................................. 5,400 208,575
-----------
462,225
-----------
IRON & STEEL--2.2%
UCAR International, Inc.(b)......................................... 9,600 171,000
-----------
METALS MINING--2.5%
Cleveland-Cliffs, Inc............................................... 4,800 193,500
-----------
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C> <C>
OIL & GAS (DRILLING & EQUIPMENT)--4.6%
Diamond Offshore Drilling, Inc...................................... 8,400 $ 198,975
R&B Falcon Corp.(b)................................................. 21,800 166,225
-----------
365,200
-----------
OIL & GAS (REFINING & MARKETING)--2.2%
Sunoco, Inc......................................................... 4,800 173,100
-----------
OIL (DOMESTIC INTEGRATED)--2.2%
Phillips Petroleum Co............................................... 4,100 174,763
-----------
RAILROADS--5.0%
Burlington Northern Santa Fe Corp................................... 5,400 182,250
Kansas City Southern Industries, Inc................................ 4,400 216,425
-----------
398,675
-----------
RETAIL (SPECIALTY)--2.4%
Jo-Ann Stores, Inc. Class A(b)...................................... 11,700 188,663
-----------
SERVICES (COMMERCIAL & CONSUMER)--2.1%
Western Resources, Inc.............................................. 5,000 166,250
-----------
TELEPHONE--2.7%
GTE Corp............................................................ 3,200 215,800
-----------
TOTAL COMMON STOCKS
(Identified cost $6,477,092)................................................ 6,434,157
-----------
FOREIGN COMMON STOCKS--18.3%
AIRLINES--2.6%
KLM Royal Dutch Airlines NV NY Registered Shares (Netherlands)......
6,900 207,000
-----------
BANKS (MAJOR REGIONAL)--2.3%
National Bank of Canada (Canada).................................... 11,400 184,110
-----------
HOUSEHOLD FURNITURE & APPLIANCES--2.5%
Koninklijke (Royal) Philips Electronics NV NY Registered Shares
(Netherlands)..................................................... 2,900 196,294
-----------
INSURANCE (MULTI-LINE)--2.2%
PartnerRe Ltd. (Bermuda)............................................ 3,800 173,850
-----------
MACHINERY (DIVERSIFIED)--2.3%
New Holland NV (Netherlands)........................................ 13,500 184,781
-----------
METALS MINING--1.5%
Inco Ltd. (Canada).................................................. 10,900 115,131
-----------
OIL & GAS (EXPLORATION & PRODUCTION)--4.9%
Petroleum Geo-Services Sponsored ADR (Norway)(b).................... 13,300 209,475
Repsol SA Sponsored ADR (Spain)..................................... 3,200 174,800
-----------
384,275
-----------
TOTAL FOREIGN COMMON STOCKS
(Identified cost $1,674,963)................................................ 1,445,441
-----------
TOTAL INVESTMENTS--99.8%
(Identified cost $8,152,055)................................................ 7,879,598(a)
Cash and receivables, less liabilities--0.2%................................ 15,994
-----------
NET ASSETS--100.0%............................................................ $ 7,895,592
-----------
-----------
</TABLE>
(a) Federal Income Tax Information: Net unrealized depreciation of investment
securities is comprised of gross appreciation of $737,204 and gross
depreciation of $1,009,661 for federal income tax purposes. At December 31,
1998, the aggregate cost of securities for federal income tax purposes was
$8,152,055.
(b) Non-income producing.
See Notes to Financial Statements
89
<PAGE>
SCHAFER MID-CAP VALUE SERIES
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
Investment securities at value (Identified cost
$8,152,055)............................................... $7,879,598
Cash........................................................ 82,965
Receivables
Dividends and interest.................................... 8,606
Prepaid expenses............................................ 141
----------
Total assets............................................ 7,971,310
----------
LIABILITIES
Payables
Fund shares repurchased................................... 7,980
Investment advisory fee................................... 25,669
Trustees' fee............................................. 5,044
Financial agent fee....................................... 3,725
Accrued expenses.......................................... 33,300
----------
Total liabilities....................................... 75,718
----------
NET ASSETS.................................................. $7,895,592
----------
----------
NET ASSETS CONSIST OF:
Capital paid in on shares of beneficial interest.......... $8,509,731
Distributions in excess of net investment income.......... (118)
Accumulated net realized loss............................. (341,564)
Net unrealized depreciation............................... (272,457)
----------
NET ASSETS.................................................. $7,895,592
----------
----------
Shares of beneficial interest outstanding, $1 par value,
unlimited authorization................................... 893,567
----------
----------
Net asset value and offering price per share................ $ 8.84
-----
-----
</TABLE>
STATEMENT OF OPERATIONS
FROM INCEPTION MARCH 2, 1998 TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 69,321
Interest.................................................. 8,433
Foreign taxes withheld.................................... (1,356)
----------
Total investment income................................. 76,398
----------
EXPENSES
Investment advisory fee................................... 46,644
Financial agent fee....................................... 24,098
Professional.............................................. 13,507
Trustees.................................................. 12,647
Printing.................................................. 12,041
Custodian................................................. 9,623
Miscellaneous............................................. 4,758
----------
Total expenses.......................................... 123,318
Less expenses borne by investment adviser............... (69,977)
----------
Net expenses............................................ 53,341
----------
NET INVESTMENT INCOME....................................... 23,057
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities........................... (341,564)
Net change in unrealized appreciation (depreciation) on
investments............................................. (272,457)
----------
NET LOSS ON INVESTMENTS..................................... (614,021)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ (590,964)
----------
----------
</TABLE>
See Notes to Financial Statements
90
<PAGE>
SCHAFER MID-CAP VALUE SERIES
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FROM INCEPTION
MARCH 2, 1998
TO
DECEMBER 31,
1998
--------------
<S> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 23,057
Net realized gain (loss).................................. (341,564)
Net change in unrealized appreciation (depreciation)...... (272,457)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS...... (590,964)
--------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Net investment income..................................... (23,057)
In excess of net investment income........................ (118)
--------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO
SHAREHOLDERS............................................ (23,175)
--------------
FROM SHARE TRANSACTIONS
CLASS A
Proceeds from sales of shares (1,051,036 shares).......... 9,921,823
Net asset value of shares issued from reinvestment of
distributions (2,696 shares)............................ 23,175
Cost of shares repurchased (160,165 shares)............... (1,435,267)
--------------
INCREASE IN NET ASSETS FROM SHARE TRANSACTIONS............ 8,509,731
--------------
NET INCREASE IN NET ASSETS................................ 7,895,592
NET ASSETS
Beginning of period....................................... 0
--------------
END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF NET
INVESTMENT INCOME OF ($118))............................ $ 7,895,592
--------------
--------------
</TABLE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
<CAPTION>
FROM INCEPTION
3/2/98 TO
12/31/98
--------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss).............................. 0.03(3)(4)
Net realized and unrealized gain (loss)................... (1.16)
-------
TOTAL FROM INVESTMENT OPERATIONS........................ (1.13)
-------
LESS DISTRIBUTIONS
Dividends from net investment income...................... (0.03)
In excess of net investment income........................ --
-------
TOTAL DISTRIBUTIONS..................................... (0.03)
-------
CHANGE IN NET ASSET VALUE................................... (1.16)
-------
NET ASSET VALUE, END OF PERIOD.............................. $ 8.84
-------
-------
Total return................................................ (11.37)%(2)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (thousands)....................... $ 7,896
RATIO TO AVERAGE NET ASSETS OF:
Operating expenses........................................ 1.20%(1)
Net investment income..................................... 0.52%(1)
Portfolio turnover rate..................................... 21%(2)
</TABLE>
(1) Annualized.
(2) Not annualized.
(3) Includes reimbursement of operating expenses by investment adviser of $0.11
per share.
(4) Computed using average shares outstanding.
See Notes to Financial Statements
91
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--ORGANIZATION
The Phoenix Edge Series Fund (the "Fund") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund is comprised
of the Money Market, Growth, Multi-Sector Fixed Income, Strategic Allocation,
International, Balanced, Real Estate Securities ("Real Estate"), Strategic
Theme, Aberdeen New Asia, Research Enhanced Index ("Enhanced Index"),
Engemann Nifty Fifty, Seneca Mid-Cap Growth, Growth and Income, Value Equity
and Schafer Mid-Cap Value Series. The Fund was established as part of the
December 8, 1986 reorganization of the Phoenix Home Life Variable
Accumulation Account (the "Account") from a management investment company to
a unit investment trust under the Investment Company Act of 1940. The Fund is
organized with Series which are available only to the the subaccounts of the
Phoenix Home Life Variable Accumulation Account, Phoenix Home Life Variable
Universal Life Account, PHL Variable Accumulation Account, Phoenix Life and
Annuity Variable Universal Life Account, and Phoenix Home Life Separate
Accounts B, C, and D.
Each Series has distinct investment objectives. The Money Market Series seeks
to provide maximum current income consistent with capital preservation and
liquidity. The Growth Series seeks to achieve intermediate and long-term
growth of capital, with income as a secondary consideration. The Multi-Sector
Fixed Income Series seeks to provide long-term total return by investing in a
diversified portfolio of high yield and high quality fixed income securities.
The Strategic Allocation Series seeks to realize as high a level of total
rate of return over an extended period of time as is considered consistent
with prudent investment risk by investing in three market segments; stocks,
bonds and money market instruments. The International Series seeks as its
investment objective a high total return consistent with reasonable risk by
investing primarily in an internationally diversified portfolio of equity
securities. The Balanced Series seeks to provide reasonable income, long-term
growth and conservation of capital. The Real Estate Series seeks to achieve
capital appreciation and income with approximately equal emphasis through
investments in real estate investment trusts and companies that operate,
manage, develop or invest in real estate. The Strategic Theme Series seeks
long-term appreciation of capital by investing in securities that the adviser
believes are well positioned to benefit from cultural, demographic,
regulatory, social or technological changes worldwide. The Aberdeen New Asia
Series seeks to provide long-term capital appreciation by investing primarily
in diversified equity securities of issuers organized and principally
operating in Asia, excluding Japan. The Enhanced Index Series seeks high
total return by investing in a broadly diversified portfolio of equity
securities of large and medium capitalization companies within market sectors
reflected in the Standard & Poor's 500 Composite Stock Price Index. The
Engemann Nifty Fifty Series seeks to achieve long-term capital appreciation
investing in approximately 50 different securities which offer the potential
for long term growth of capital. The Seneca Mid-Cap Growth Series seeks
capital appreciation primarily through investments in equity securities of
companies that have the potential for above average market appreciation. The
Growth and Income Series seeks as its investment objective, dividend growth,
current income and capital appreciation by investing in common stocks. The
Value Equity Series seeks to achieve long-term capital appreciation and
income by investing in a diversified portfolio of common stocks which meet
certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price. The Schafer Mid-Cap Value
Series seeks to achieve long-term capital appreciation with current income as
the secondary investment objective by investing in common stocks of
established companies having a strong financial position and a low stock
market valuation at the time of purchase which are believed to offer the
possibility of increase in value.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and
expenses. Actual results could differ from those estimates.
A. SECURITY VALUATION
Equity securities are valued at the last sale price, or if there had been no
sale that day, at the last bid price. Debt securities are valued on the basis
of broker quotations or valuations provided by a pricing service which
utilizes information with respect to recent sales, market transactions in
comparable securities, quotations from dealers, and various relationships
between securities in determining value. Short-term investments having a
remaining maturity of 60 days or less are valued at amortized cost which
approximates market. All other securities and assets are valued at their fair
value as determined in good faith by or under the direction of the Trustees.
The Money Market Series uses the amortized cost method of security valuation
which, in the opinion of the Trustees, represents the fair value of the
particular security. The Trustees monitor the deviations between the Series'
net asset value per share as determined by using available market quotations
and its amortized cost per share. If the deviation exceeds 1/2 of 1%, the
Board of Trustees will consider what action, if any, should be initiated to
provide fair valuation. The Series attempts to maintain a constant net asset
value of $10 per share.
On September 1, 1998, the Central Bank of Malaysia, announced measures that
significantly restrict the rights of non-residents with respect to
transactions in Malaysian securities with the intention to insulate Malaysia
from the problems confronting the international financial markets.
92
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Beginning September 1, 1998 the Malaysian government fixed the exchange rate
of its currency, the Ringgit, at 3.80 Ringgit equal to US$1.00 and adopted
stringent controls over currency and stock trading which had the effect of
forcing all offshore holdings of Malaysian currency and securities back into
the country. In addition, the government suspended foreign investors' ability
to convert proceeds from the sale of Malaysian securities into foreign
currency for one year from the date of initial purchase, with repatriation of
the proceeds from the sale of all securities held at September 1, 1998
prohibited for one year. As a result of the imposition of the above
restrictions over currency and stock trading, the Fund's Board of Trustees
have deemed all holdings of the Fund in Malaysian securities as illiquid and
have fair valued holdings in such securities using an exchange rate of 4.56
Ringgit equal to US$1.00. At December 31, 1998, investments in Malaysia for
the International Series aggregating $522,764 (0.2% of net assets) and for
the Aberdeen New Asia Series aggregating $546,904 (5.75% of net assets) have
been fair valued in good faith by, or under the direction of, the Fund's
Board of Trustees.
B. SECURITY TRANSACTIONS AND RELATED INCOME
Security transactions are recorded on the trade date. Interest income is
recorded on the accrual basis. Dividend income is recorded on the ex-dividend
date, or in the case of certain foreign securities, as soon as the Fund is
notified. The Fund does not amortize premiums except for the Money Market
Series, but does amortize discounts using the effective interest method.
Realized gains and losses are determined on the identified cost basis.
C. INCOME TAXES
Each of the Series is treated as a separate taxable entity. It is the policy
of each Series to comply with the requirements of the Internal Revenue Code,
applicable to regulated investment companies, and to distribute all of its
taxable income to its shareholders. In addition, each Series intends to
distribute an amount sufficient to avoid imposition of any excise tax under
Section 4982 of the Code. Therefore, no provision for federal income taxes or
excise taxes has been made.
D. DISTRIBUTIONS TO SHAREHOLDERS
Distributions are recorded by each Series on the ex-dividend date and all
distributions are reinvested into the Fund. Income and capital gain
distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These differences
include the treatment of non-taxable dividends, expiring capital loss
carryforwards, foreign currency gain/loss, partnerships, and losses deferred
due to wash sales and excise tax regulations. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications to paid in capital.
E. FOREIGN CURRENCY TRANSLATION
Foreign securities and other assets and liabilities are valued using the
foreign currency exchange rate effective at the end of the reporting period.
Cost of investments is translated at the currency exchange rate effective at
the trade date. The gain or loss resulting from a change in currency exchange
rates between the trade and settlement dates of a portfolio transaction is
treated as a gain or loss on foreign currency. Likewise, the gain or loss
resulting from a change in currency exchange rates between the date income is
accrued and paid is treated as a gain or loss on foreign currency. The Fund
does not separate that portion of the results of operations arising from
changes in exchange rates and that portion arising from changes in the market
prices of securities.
F. FORWARD CURRENCY CONTRACTS
Each Series may enter into forward currency contracts in conjunction with the
planned purchase or sale of foreign denominated securities in order to hedge
the U.S. dollar cost or proceeds. Forward currency contracts involve, to
varying degrees, elements of market risk in excess of the amount recognized
in the statement of assets and liabilities. Risks arise from the possible
movements in foreign exchange rates or if the counterparty does not perform
under the contract.
A forward currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any number of days from the
date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded directly between currency traders
and their customers. The contract is marked-to-market daily and the change in
market value is recorded by the Series as an unrealized gain (or loss). When
the contract is closed or offset with the same counterparty, the Series
records a realized gain (or loss) equal to the change in the value of the
contract when it was opened and the value at the time it was closed or
offset.
G. FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
security at a set price on a future date. A Series may enter into financial
futures contracts as a hedge against anticipated changes in the market value
of their portfolio securities. Upon entering into a futures contract, the
Series is required to pledge to the broker an amount of cash and/or
securities equal to the "initial margin" requirements of the futures exchange
on which the contract is traded. Pursuant to the contract, the Series agrees
to receive from or pay to the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known
as variation margins and are recorded by the Series as unrealized gains or
losses. When the contract is closed, the Series records a realized gain or
loss equal to the difference between the value of the contract at the time it
was opened and the value at the time it was closed. The potential risk to the
Series is that the change in value of the futures contract may not correspond
to the change in value of the hedged instruments.
93
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
H. OPTIONS
The Multi-Sector Fixed Income, Money Market, Growth, Strategic Allocation,
Balanced, International, Strategic Theme, Enhanced Index, Seneca Mid-Cap
Growth, Growth and Income, Value Equity and Aberdeen New Asia Series may
write covered options or purchase options contracts for the purpose of
hedging against changes in the market value of the underlying securities or
foreign currencies.
Each Series will realize a gain or loss upon the expiration or closing of the
option transaction. Gains and losses on written options are reported
separately in the Statement of Operations. When a written option is
exercised, the proceeds on sales or amounts paid are adjusted by the amount
of premium received. Options written are reported as a liability in the
Statement of Assets and Liabilities and subsequently marked-to-market to
reflect the current value of the option. The risk associated with written
options is that the change in value of options contracts may not correspond
to the change in value of the hedged instruments. In addition, losses may
arise from changes in the value of the underlying instruments, or if a liquid
secondary market does not exist for the contracts.
Each Series may purchase options which are included in the Series' Schedule
of Investments and subsequently marked-to-market to reflect the current value
of the option. When a purchased option is exercised, the cost of the security
is adjusted by the amount of premium paid. The risk associated with purchased
options is limited to the premium paid.
I. EXPENSES
Expenses incurred by the Fund with respect to any two or more Series are
allocated in proportion to the net assets of each Series, except where
allocation of direct expense to each Series or an alternative allocation
method can be more fairly made.
J. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each Series may engage in when-issued or delayed delivery transactions. The
Series record when-issued securities on the trade date and maintain
collateral for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis begin earning interest on the
settlement date.
K. REPURCHASE AGREEMENTS
A repurchase agreement is a transaction where a Series acquires a security
for cash and obtains a simultaneous commitment from the seller to repurchase
the security at an agreed upon price and date. The Series, through its
custodian, takes possession of securities collateralizing the repurchase
agreement. The collateral is marked to market daily to ensure that the market
value of the underlying assets remains sufficient to protect the Series in
the event of default by the seller. If the seller defaults and the value of
the collateral declines or, if the seller enters insolvency proceedings,
realization of collateral may be delayed or limited.
NOTE 3--INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
As compensation for advisory services to the Fund, the Advisers are entitled
to a fee, based upon the following annual rates as a percentage of the
average daily net assets of each separate Series listed below:
<TABLE>
<CAPTION>
RATE FOR FIRST RATE FOR NEXT RATE FOR EXCESS
SERIES $250 MILLION $250 MILLION OVER $500 MILLION
- - -------------------------------------------------- -------------- ------------- ------------------
<S> <C> <C> <C>
Money Market...................................... 0.40% 0.35% 0.30%
Growth............................................ 0.70 0.65 0.60
Multi-Sector Fixed Income......................... 0.50 0.45 0.40
Strategic Allocation.............................. 0.60 0.55 0.50
International..................................... 0.75 0.70 0.65
Balanced.......................................... 0.55 0.50 0.45
Strategic Theme................................... 0.75 0.70 0.65
Aberdeen New Asia................................. 1.00 1.00 1.00
Enhanced Index.................................... 0.45 0.45 0.45
Engemann Nifty Fifty.............................. 0.90 0.85 0.80
Seneca Mid-Cap Growth............................. 0.80 0.80 0.80
Growth and Income................................. 0.70 0.65 0.60
Value Equity...................................... 0.70 0.65 0.60
Schafer Mid-Cap Value............................. 1.05 1.05 1.05
<CAPTION>
RATE FOR FIRST RATE FOR NEXT RATE FOR EXCESS
$1 BILLION $1 BILLION OVER $2 BILLION
-------------- ------------- ------------------
<S> <C> <C> <C>
Real Estate....................................... 0.75 0.70 0.65
</TABLE>
94
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Phoenix Investment Council ("PIC") is adviser to each Series except the Real
Estate Series and Aberdeen New Asia Series. Pursuant to a subadvisory
agreement with the Fund, PIC delegates certain investment decisions and
research functions with respect to the following series to the subadvisor
indicated, for which services each is paid a fee by PIC.
<TABLE>
<S> <C>
Enhanced Index Series.................................... J.P. Morgan Investment Management, Inc. ("J.P. Morgan")
Engemann Nifty Fifty Series.............................. Roger Engemann & Associates, Inc. ("Engemann")
Seneca Mid-Cap Growth Series............................. Seneca Capital Management, LLC ("Seneca")
Schafer Mid-Cap Value Series............................. Schafer Capital Management, Inc. ("Schafer")
</TABLE>
In accordance with the subadvisory agreement between the Fund and J.P.
Morgan, J.P. Morgan is paid a monthly fee at the annual rate of 0.25% of the
average aggregate daily net asset values of the Enhanced Index Series up to
$100 million; and 0.20% of such value in excess of $100 million. Pursuant to
the subadvisory agreement with the Fund and Engemann, Engemann is paid a
monthly fee at the annual rate of .45% of the average aggregate daily net
asset values of the Engemann Nifty Fifty Series up to $250,000,000, .425% of
such values between $250,000,000 and $500,000,000 and .40% of such values in
excess of $500,000.000. Pursuant to the subadvisory agreement with the Fund
and Seneca, Seneca is paid a monthly fee at the annual rate of .40% of the
average aggregate daily net asset values of the Seneca Mid-Cap Growth Series.
In accordance with the subadvisory agreement with the Fund and Schafer,
Schafer is paid a monthly fee at the annual rate of .85% of the average
aggregate daily net asset values of the Schafer Mid-Cap Value Series up to
$175 million and .80% of such value in excess of $175 million.
Effective November 24, 1998, Aberdeen Fund Managers, Inc. ("Aberdeen") was
appointed subadvisor to the International Series. For its services, Aberdeen
is paid a fee by the Advisers equal to 0.375% of the average daily net assets
of the International Series up to $250 million, 0.35% of such value between
$250 million to $500 million and 0.325% of such value in excess of $500
million. Aberdeen is a subsidiary of Aberdeen Asset Management PLC, of which
PHL owns approximately 11%.
The investment adviser for the Real Estate Series through March 2, 1998 was
Phoenix Realty Securities, Inc. ("PRS"). PRS is an indirect, wholly-owned
subsidiary of Phoenix Home Life Mutual Insurance Company ("PHL"). For its
services, PRS was entitled to a fee at an annual rate of 0.75% of the average
daily net assets for the first $1 billion. Pursuant to a subadvisory
agreement with the Series, PRS delegates certain investment decisions and
research functions to Duff & Phelps Investment Management Co. ("DPIM"), a
subsidiary of Phoenix Investment Partners, Ltd. ("PXP"). PXP is a majority
owned subsidiary of PHL. On March 2, 1998 DPIM purchased the management
rights for the Real Estate Series from PRS and PRS' contract was assigned to
DPIM. For its services, DPIM is entitled to a fee at an annual rate of 0.75%
of the average daily net assets for the first $1 billion, 0.70% on the next
$1 billion and 0.65% thereafter.
Phoenix-Aberdeen International Advisors, LLC ("PAIA") serves as the
investment adviser to the Aberdeen New Asia Series. PAIA is a joint venture
between PM Holdings, Inc., a direct subsidiary of PHL, and Aberdeen Fund
Managers, Inc. ("Aberdeen"), a wholly-owned subsidiary of Aberdeen Asset
Management PLC. PAIA is entitled to a fee, at an annual rate of 1.00% of the
average daily net assets of the Aberdeen New Asia Series. Pursuant to
subadvisory agreements, PAIA delegates certain investment decisions and
functions to other entities. PIC receives a fee of 0.30% of the average daily
net assets of the Aberdeen New Asia Series from PAIA for providing research
and other domestic advisory services, as needed. In addition, PAIA also pays
a subadvisory fee to Aberdeen of 0.40% of the average daily net assets of the
Aberdeen New Asia Series for implementing certain portfolio transactions and
providing research and other services.
Each Series (except the International, Real Estate, Strategic Theme, Aberdeen
New Asia, Enhanced Index and Seneca Mid-Cap Series) pays a portion or all of
its other operating expenses (not including management fee, interest, taxes,
brokerage fees and commissions), up to 0.15% of its average net assets. The
International, Real Estate, Strategic Theme, Aberdeen New Asia, Enhanced
Index and Seneca Mid-Cap Series pay other operating expenses up to 0.40%,
0.25%, 0.25%, 0.25%, 0.10% and .25% respectively, of its average net assets.
Expenses above these limits are paid by the Advisers (PIC, DPIM, PAIA), PHL
and/or PHL Variable Insurance Company.
As Financial Agent to the Fund and to each Series, Phoenix Equity Planning
Corporation ("PEPCO"), an indirect majority-owned subsidiary of PHL, received
a fee at an annual rate of 0.06% of the average daily net assets of each
Series through May 31, 1998 for bookkeeping, administrative and pricing
services.
Effective June 1, 1998, PEPCO receives a financial agent fee equal to the sum
of (1) the documented cost of fund accounting and related services provided
by PFPC, Inc. (subagent to PEPCO), plus (2) the documented cost to PEPCO to
provide financial reporting, tax services and oversight of subagent's
performance. The current fee schedule of PFPC, Inc. ranges from 0.085% to
0.0125% of the average daily net asset values of the Fund. Certain minimum
fees and fee waivers may apply.
95
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
At December 31, 1998, PHL and affiliates held shares in The Phoenix Edge
Series Fund which had the following aggregate value:
<TABLE>
<S> <C>
Real Estate Series............................... $ 3,313,172
Aberdeen New Asia Series......................... 1,885,989
Engemann Nifty Fifty Series...................... 2,499,272
Seneca Mid-Cap Growth Series..................... 2,388,100
Growth and Income Series......................... 2,384,514
Value Equity Series.............................. 2,197,472
Schafer Mid-Cap Value Series..................... 1,754,054
</TABLE>
NOTE 4--PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities during the period ended December 31, 1998
(excluding U.S. Government securities, short-term securities, options written
and forward currency contracts) aggregated the following:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Growth Series.......................... $1,623,280,248 $1,619,706,351
Multi-Sector Fixed Income Series....... 233,895,415 197,086,009
Strategic Allocation Series............ 529,142,388 502,610,192
International Series................... 202,357,792 214,439,616
Balanced Series........................ 282,447,552 258,900,399
Real Estate Series..................... 7,732,285 9,846,099
Strategic Theme Series................. 195,397,197 185,996,003
Aberdeen New Asia Series............... 4,993,427 3,959,516
Research Enhanced Index Series......... 46,318,196 20,947,863
Engemann Nifty Fifty Series............ 17,010,118 6,080,962
Seneca Mid-Cap Growth Series........... 12,295,627 5,596,788
Growth and Income Series............... 53,386,812 16,444,743
Value Equity Series.................... 12,958,808 4,279,319
Schafer Mid-Cap Value Series........... 9,669,802 834,650
</TABLE>
There were no purchases or sales of such securities in the Money Market
Series.
Purchases and sales of long-term U.S. Government securities during the period
ended December 31, 1998 aggregated the following:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
Multi-Sector Fixed Income Series..... $91,713,764 $110,151,084
Strategic Allocation Series.......... 24,650,801 51,883,816
Balanced Series...................... 59,109,060 56,841,567
</TABLE>
There were no purchases or sales of long-term U.S. Government Securities in
the Money Market, Growth, International, Real Estate, Strategic Theme,
Aberdeen New Asia, Enhanced Index, Engemann Nifty-Fifty, Seneca Mid-Cap
Growth, Growth and Income, Value Equity and Schafer Mid-Cap Value Series.
Written call option activity for the year ended December 31, 1998 aggregated
the following:
<TABLE>
<CAPTION>
GROWTH AND INCOME
SERIES
-------------------
AMOUNT
# OF OF
OPTIONS PREMIUMS
-------- --------
<S> <C> <C>
Options outstanding at December 31,
1997............................... -- $ --
Options written...................... 70 11,727
Options canceled in closing purchase
transactions....................... -- --
Options expired...................... (48) (7,393)
Options exercised.................... (22) (4,334)
--
--------
Options outstanding at December 31,
1998............................... -- --
--
--
--------
--------
</TABLE>
At December 31, 1998, the Enhanced Index Series had entered into futures
contracts as follows:
<TABLE>
<CAPTION>
VALUE OF
NUMBER CONTRACTS MARKET NET
OF WHEN VALUE OF UNREALIZED
DESCRIPTION CONTRACTS OPENED CONTRACTS APPRECIATION
----------------------------------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Standard & Poor's 500 Index.............. 2 $ 578,475 $ 622,750 $44,275
Standard & Poor's 500 Index.............. 1 298,575 311,375 12,800
Standard & Poor's 500 Index.............. 1 305,500 311,375 5,875
--- ---------- ---------- ------------
4 $1,182,550 $1,245,500 $62,950
--- ---------- ---------- ------------
--- ---------- ---------- ------------
</TABLE>
96
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 5--CREDIT RISK
In countries with limited or developing markets, investments may present
greater risks than in more developed markets and the prices of such
investments may be volatile. The consequences of political, social or
economic changes in these markets may have disruptive effects on the market
prices of these investments and the income they generate, as well as a fund's
ability to repatriate such amounts.
NOTE 6--LOAN AGREEMENTS
The Fund may invest in direct debt instruments which are interests in amounts
owed by a corporate, governmental, or other borrower to lenders or lending
syndicates. The Fund's investments in loans may be in the form of
participations in loans or assignments of all or a portion of loans from
third parties. A loan is often administered by a bank or other financial
institution (the lender) that acts as agent for all holders. The agent
administers the terms of the loan, as specified in the loan agreement. When
investing in a loan participation, the Fund has the right to receive payments
of principal, interest and any fees to which it is entitled only from the
lender selling the loan agreement and only upon receipt by the lender of
payments from the borrower. The Fund generally has no right to enforce
compliance with the terms of the loan agreement with the borrower. As a
result, the Fund may be subject to the credit risk of both the borrower and
the lender that is selling the loan agreement. When the Fund purchases
assignments from lenders it acquires direct rights against the borrower on
the loan. Direct indebtedness of emerging countries involves a risk that the
government entities responsible for the repayment of the debt may be unable,
or unwilling to pay the principal and interest when due.
NOTE 7--CAPITAL LOSS CARRYOVERS
At December 31, 1998, the following Series have capital loss carryforwards
which may be used to offset future capital gains.
<TABLE>
<S> <C>
Multi-Sector Fixed Income Series....... $ 566,989
Real Estate Series..................... 113,500
Aberdeen New Asia Series............... 2,887,698
Engemann Nifty Fifty Series............ 4,085
Seneca Mid-Cap Growth Series........... 164,133
Growth and Income Series............... 349,419
Value Equity Series.................... 104,098
Schafer Mid-Cap Value Series........... 285,733
</TABLE>
Capital loss carryforwards expire in 2006 for all Series except for Aberdeen
New Asia Series which expires as follows: $143,419 in 2005 and $2,744,279 in
2006.
Under current tax law, capital and foreign currency losses realized after
October 31, 1998 may be deferred and treated as occurring on the first day of
the following tax year. For the calendar year ended December 31, 1998 the
Aberdeen New Asia Series, Multi-Sector Fixed Income Series, and Schafer
Mid-Cap Growth Series elected to defer losses occurring between November 1,
1998 and December 31, 1998 in the amount of $496,277, $5,850,282, and
$55,831, respectively. In addition, the International Series, Aberdeen New
Asia Series, Growth Series and Strategic Theme Series were able to utilize
losses deferred in the prior year in the amount of $761,290, $379,802, $1,144
and $1,280,577, respectively.
NOTE 8--RECLASS OF CAPITAL ACCOUNTS
In accordance with accounting pronouncements, the Series have recorded
several reclassifications in the capital accounts. These reclassifications
have no impact on the net asset value of the Series and are designed
generally to present undistributed net investment income and realized gains
on a tax basis which is considered to be more informative to the shareholder.
As of December 31, 1998, the Series recorded the following reclassifications
to increase (decrease) the accounts listed below:
<TABLE>
<CAPTION>
ACCUMULATED
UNDISTRIBUTED NET CAPITAL PAID IN ON
NET INVESTMENT REALIZED SHARE OF BENEFICIAL
INCOME (LOSS) GAIN (LOSS) INTEREST
-------------- ----------- -------------------
<S> <C> <C> <C>
Multi-Sector Fixed Income Series.................. $ 185,299 $ (20,925) $(164,374)
Strategic Allocation Series....................... 3,389 (3,389) --
International Series.............................. 1,020,757 (1,020,757) --
Balanced Series................................... 7,308 (7,308) --
Strategic Theme Series............................ 5,345 (5,345) --
Aberdeen New Asia Series.......................... 98,695 (98,695) --
Engemann Nifty-Fifty Series....................... 1,543 -- (1,543)
Growth and Income Series.......................... (257) 257 --
</TABLE>
97
<PAGE>
THE PHOENIX EDGE SERIES FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For the fiscal year ended December 31, 1998, the following Series
distributed long-term capital gain dividends as follows:
<TABLE>
<CAPTION>
TOTAL LONG-TERM
DISTRIBUTIONS
---------------
<S> <C>
Growth Series..................................... $29,385,512
Multi-Sector Fixed Income Series.................. 788,837
Strategic Allocation Series....................... 562,474
International Series.............................. 22,045,574
Balanced Series................................... 3,589,015
Real Estate Securities Series..................... 26,597
Research Enhanced Index Series.................... 620,322
</TABLE>
This report is not authorized for distribution to prospective investors in The
Phoenix Edge Series Fund unless preceded or accompanied by and effective
Prospectus which includes information concerning the sales charges, Fund's
record and other
pertinent information.
98
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGO]
TO THE SHAREHOLDERS AND TRUSTEES OF
THE PHOENIX EDGE SERIES FUND
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments (except for bond ratings), and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Money Market Series, Growth Series, Multi-Sector Fixed Income Series,
Strategic Allocation Series, International Series, Balanced Series, Real Estate
Securities Series, Strategic Theme Series, Aberdeen New Asia Series, Research
Enhanced Index Series, Engemann Nifty Fifty Series, Seneca Mid-Cap Growth
Series, Growth and Income Series, Value Equity Series, and Schafer Mid-Cap Value
Series (constituting the Phoenix Edge Series Fund, hereafter referred to as the
"Fund") at December 31, 1998, and the results of each of their operations, the
changes in each of their net assets and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodians and brokers, provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 1999
<PAGE>
RESULTS OF SHAREHOLDER MEETING (UNAUDITED)
MEETING 1: A special meeting of Shareholders of the Phoenix Aberdeen New Asia
Series of The Phoenix Edge Series Fund was held on October 21, 1998 to approve
the following matters:
1. Approval of an advisory agreement with Phoenix-Aberdeen International
Advisors LLC.
2. Approval of a subadvisory agreement with Aberdeen Fund Managers, Inc.
3. Approval of a subadvisory agreement with Phoenix Investment Counsel, Inc.
On the record date for this meeting there were 1,542,936 shares outstanding
and 100% of the shares outstanding and entitled to vote were present by proxy.
NUMBER OF VOTES
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- --------- ---------
<S> <C> <C> <C>
1. Approval of investment advisory agreement 1,331,496 84,905 126,535
2. Approval of investment subadvisory agreement 1,326,736 85,559 130,641
3. Approval of investment subadvisory agreement 1,339,160 78,984 124,792
</TABLE>
MEETING 2: A special meeting of Shareholders of the Phoenix Edge Series Fund was
held on November 24, 1998 to approve the following matters:
1. Fix the number of trustees at twelve and elect such number as detailed below.
2. Ratify selection of PricewaterhouseCoopers LLP, independent accountants, as
auditors for the fiscal year ending
December 31, 1998.
3. Approval of a subadvisory agreement with Aberdeen Fund Managers, Inc.
(International Series only)
On the record date for this meeting, for the Phoenix Edge Series Fund, there
were 195,708,457 shares outstanding and 100% of the shares outstanding and
entitled to vote were present by proxy. For the International Series, there were
13,164,334 shares outstanding and 100% of the shares outstanding and entitled to
vote were present by proxy.
NUMBER OF VOTES:
<TABLE>
<CAPTION>
FOR WITHHELD
------------- ----------
<S> <C> <C> <C>
1. Election of Trustees
Robert Chesek 187,977,973 7,703,484
E. Virgil Conway 187,762,694 7,945,763
Harry Dalzell-Payne 187,684,410 8,024,047
Francis E. Jeffries 187,938,831 7,769,626
Leroy Keith, Jr. 188,134,540 7,573,917
Philip R. McLoughlin 188,173,681 7,534,776
Everett L. Morris 187,938,831 7,769,626
James M. Oates 188,154,111 7,554,346
Calvin J. Pedersen 188,173,681 7,534,776
Herbert Roth, Jr. 187,860,548 7,847,909
Richard E. Segerson 188,154,111 7,554,346
Lowell P. Weicker, Jr. 187,136,427 8,572,030
FOR AGAINST ABSTAIN
------------- ---------- ----------
2. PricewaterhouseCoopers LLP 188,545,527 1,741,805 5,421,124
FOR AGAINST ABSTAIN
------------- ---------- ----------
3. Approval of investment subadvisory agreement 11,596,462 667,432 900,400
</TABLE>
<PAGE>
THE PHOENIX EDGE SERIES FUND
101 Munson Street
Greenfield, Massachusetts 01301
BOARD OF TRUSTEES
Robert Chesek
E. Virgil Conway
Harry Dalzell-Payne
Francis E. Jeffries
Leroy Keith, Jr.
Philip R. McLoughlin
Everett L. Morris
James M. Oates
Calvin J. Pedersen
Herbert Roth, Jr.
Richard E. Segerson
Lowell P. Weicker, Jr.
OFFICERS
Philip R. McLoughlin, President
Michael E. Haylon, Executive Vice President
John F. Sharry, Executive Vice President
J. Roger Engemann, Senior Vice President
David K. Schafer, Senior Vice President
Gail P. Seneca, Senior Vice President
James D. Wehr, Senior Vice President
Hugh Young, Senior Vice President
David L. Albrycht, Vice President
Christian C. Bertelsen, Vice President
Steven L. Colton, Vice President
Timothy Devlin, Vice President
Ron K. Jacks, Vice President
John D. Kattar, Vice President
Christopher J. Kelleher, Vice President
Richard D. Little, Vice President
James E. Mair, Vice President
William R. Moyer, Vice President
Leonard J. Saltiel, Vice President
Julie L. Sapia, Vice President
Michael Schatt, Vice President
John S. Tilson, Vice President
Pierre G. Trinque, Vice President
James Wiess, Vice President
Nancy G. Curtiss, Treasurer
G. Jeffrey Bohne, Secretary
INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc.
56 Prospect Street
Hartford, Connecticut 06115-0480
Duff & Phelps Investment Management Co.
(Real Estate Securities Series)
55 East Monroe Street
Chicago, Illinois 60603
Phoenix-Aberdeen International Advisors, LLC
(Aberdeen New Asia Series)
56 Prospect Street
Hartford, Connecticut 06115-0480
CUSTODIANS
The Chase Manhattan Bank
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(Aberdeen New Asia Series and International Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
TRANSFER AGENT
Phoenix Equity Planning Corporation
100 Bright Meadow Boulevard
P.O. Box 2200
Enfield, Connecticut 06083-2200
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
<PAGE>
THE PHOENIX EDGE SERIES FUND
PART C--OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
1. Condensed Financial Information is included in Part A of the
Registration Statement.
2. Financial Statements and Notes, thereto, and are included in
the Annual Report to Shareholders for the period ended
December 31, 1998, filed herewith.
(b) Exhibits:
1. Declaration of Trust of the Registrant dated February 18,
1986, filed with the Registration Statement on Form N-1A on
April 18, 1986 and filed via Edgar with Post-Effective
Amendment No. 18 on June 20, 1996.
1.1 Amendment to Declaration of Trust, establishing the
International Series, filed with Post-Effective Amendment
No. 7 on March 2, 1992 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
1.2 Amendment to Declaration of Trust, conforming the Fund's
borrowing restrictions to California Department's Borrowing
Guidelines, filed with Post-Effective Amendment No. 7 on
March 2, 1992 and filed via Edgar with Post-Effective
Amendment No. 20 on April 29, 1997.
1.3 Amendment to Declaration of Trust, establishing the Balanced
Series, filed with Post-Effective Amendment No. 8 on April
28, 1992 and filed via Edgar with Post-Effective Amendment
No. 20 on April 29, 1997.
1.4 Amendment to Declaration of Trust, establishing the Real
Estate Securities Series, filed with Post-Effective
Amendment No. 12 on February 16, 1995 and filed via Edgar
with Post-Effective Amendment No.
20 on April 29, 1997.
1.5 Amendment to Declaration of Trust, establishing the
Strategic Theme Series, filed via Edgar with Post-Effective
Amendment No. 16 on January 29, 1996.
1.6 Amendment to Declaration of Trust, changing the name of the
Series currently designated "Bond Series" to the
"Multi-Sector Fixed Income Series," filed via Edgar with
Post-Effective Amendment No. 17 on April 17, 1996.
1.7 Amendment to Declaration of Trust, establishing the Aberdeen
New Asia Series, filed via Edgar with Post-Effective
Amendment No. 19 on September 3, 1996.
1.8 Amendment to Declaration of Trust, establishing the Research
Enhanced Index Series, filed via Edgar with Post-Effective
Amendment No. 22 on July 15, 1997.
1.9 Amendment to Declaration of Trust, establishing five new
Series filed via Edgar with Post-Effective Amendment No. 25
on April 29, 1998.
2. Not Applicable.
3. Not Applicable.
4. Not Applicable.
5. Form of Investment Advisory Agreement between Registrant and
Phoenix Investment Counsel, Inc. covering the Balanced,
Bond, Growth, Money Market, Total Return and International
Series, filed with Post-Effective Amendment No. 11 on May 2,
1994 and filed via Edgar with Post-Effective Amendment No.
20 on April 29, 1997.
5.1 Investment Advisory Agreement between Registrant and Phoenix
Realty Securities, Inc. covering the Phoenix Real Estate
Securities Series, dated February 28, 1995 and assigned
March 2, 1998 to Duff & Phelps Investment Management Co.,
filed with Post-Effective Amendment No. 13, on April 28,
1995 and filed via Edgar with Post-Effective Amendment No.
20 on April 29, 1997.
5.2 Form of Investment Advisory Agreement between Registrant and
Phoenix-Aberdeen International Advisors, LLC, covering the
Aberdeen New Asia Series, filed via Edgar with
Post-Effective Amendment No. 18 on June 20, 1996.
5.3 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Aberdeen Fund Managers, Inc. covering
Aberdeen New Asia Series filed via Edgar with Post-Effective
Amendment No. 19 on September 3, 1996.
C-1
<PAGE>
5.4 Form of Subadvisory Agreement between The Phoenix Edge
Series Fund and Phoenix Investment Counsel, Inc. covering
Aberdeen New Asia Series filed via Edgar with Post-Effective
Amendment No. 19 on September 3, 1996.
5.5 Form of Investment Advisory Agreement between Registrant and
Phoenix Investment Counsel, Inc., covering the Research
Enhanced Index Series, filed via Edgar with Post-Effective
Amendment No. 22 on July 15, 1997.
5.6 Form of Subadvisory Agreement among Registrant, Phoenix
Investment Counsel, Inc. and J. P. Morgan Investment
Management, Inc., covering the Research Enhanced Index
Series, filed via Edgar with Post-Effective Amendment No. 22
on July 15, 1997.
5.7 Form of Subadvisory Agreement among the Registrant, Phoenix
Realty Securities, Inc. and Duff & Phelps Investment
Management Co., covering the Phoenix Real Estate Securities
Series, filed via Edgar with Post-Effective Amendment No. 23
on December 12, 1997.
5.8 Form of Investment Advisory Agreement between Registrant and
Phoenix Investment Counsel, Inc., covering the Engemann
Nifty Fifty, Seneca Mid-Cap Growth, Phoenix Income and
Growth, Phoenix Value Equity and Schafer Mid-Cap Value
Series, filed via Edgar with Post-Effective Amendment No. 24
on February 24, 1998.
5.9 Form of Investment Subadvisory Agreement among the
Registrant, Phoenix Investment Counsel, Inc. and Roger
Engemann & Associates, Seneca Capital Management, LLC and
Schafer Capital Management, Inc., filed via Edgar with
Post-Effective Amendment No. 24 on February 24, 1998.
6. Not Applicable.
7. Not Applicable.
8. Form of Custodian Agreement between Registrant and The Chase
Manhattan Bank, N.A. covering the International Series,
filed with Post-Effective Amendment No. 4 on March 13, 1990
and filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
8.1 Form of Amendment to Custodian Agreement covering
International, Money Market, Growth, Multi-Sector Fixed
Income, Strategic Income and Balanced Series, filed with
Post-Effective Amendment No. 7 on March 2, 1992 and filed
via Edgar with Post-Effective Amendment No. 20 on April 29,
1997.
8.2 Custodian Agreement between Registrant and Brown Brothers
Harriman & Co. covering the International and Asia Series,
filed with Post-Effective Amendment No. 12 on February 16,
1995 and filed via Edgar with Post-Effective Amendment No.
20 on April 29, 1997.
8.3 Form of Custodian Agreement between Registrant and State
Street Bank and Trust Company dated May 1, 1997 covering the
Real Estate Securities and Enhanced Index Series, filed via
Edgar with Post-Effective Amendment No. 23 on December 12,
1997.
9.1 Form of Transfer Agency Agreement, filed with original
Registration Statement on Form N-1A on April 18, 1986 and
filed via Edgar with Post-Effective Amendment No. 20 on
April 29, 1997.
9.2 Financial Agent Agreement between Registrant and Phoenix
Equity Planning Corporation dated December 11, 1996 filed
via Edgar with Post-Effective Amendment No. 20 on April 29,
1997.
9.3 First Amendment to Financial Agent Agreement effective
February 27, 1998 filed via Edgar with Post-Effective
Amendment No. 25 on April 29, 1998.
10. Opinion and Consent of Counsel covering shares of the
International, Multi-Sector Fixed Income, Growth, Money
Market, Balanced and Strategic Allocation Series, filed with
Post-Effective Amendment No. 7 on March 2, 1992 and filed
via Edgar with Post-Effective Amendment No. 20 on April 29,
1997.
10.1 Opinion and Consent of Counsel covering shares of the Real
Estate Securities Series, filed with Post-Effective
Amendment No. 13 on April 28, 1995 and filed via Edgar with
Post-Effective Amendment No. 20 on April 29, 1997.
10.2 Opinion and Consent of Counsel covering shares of the
Strategic Theme Series, filed via Edgar with Post-Effective
Amendment No. 16 on January 29, 1996.
10.3 Opinion and Consent of Counsel covering shares of the
Aberdeen New Asia Series, filed via Edgar with
Post-Effective Amendment No. 19 on September 3, 1996.
10.4 Opinion and Consent of Counsel covering shares of the
Research Enhanced Index Series filed via Edgar with
Post-Effective Amendment No. 22 on July 15, 1997.
10.5 Opinion and Consent of Counsel covering shares of the
Engemann Nifty Fifty, Seneca Mid-Cap Growth, Phoenix Growth
& Income, Phoenix Value Equity and Schafer Mid-Cap Value
Series filed via Edgar with Post-Effective Amendment No. 24
on February 24, 1998.
C-2
<PAGE>
11. Written Consent of PricewaterhouseCoopers LLP is filed
herewith. 12. Not Applicable.
13. Not Applicable.
14. Not Applicable.
15. Not Applicable.
16. Not Applicable.
17. Financial Data Schedule, filed via Edgar herewith and
reflected on Edgar as Exhibit 27.
18. Powers of Attorney, filed via Edgar with Post-Effective
Amendment No. 17 on April 17, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
The following diagram illustrates the Registrant's place in the
organizational structure:
[graphic omitted]
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
NUMBER OF RECORD HOLDERS
TITLE OF CLASS AS OF APRIL 27, 1999
- --------------- --------------------
Phoenix-Goodwin Multi-Sector Fixed Income Series 5
Phoenix-Goodwin Money Market Series* 5
Phoenix-Goodwin Growth Series 8
Phoenix-Goodwin Strategic Allocation Series 5
Phoenix-Goodwin Balanced Series 5
Phoenix-Aberdeen International Series 5
Phoenix-Duff & Phelps Real Estate Securities Series 5
Phoenix-Goodwin Strategic Theme Series 5
Phoenix-Aberdeen New Asia Series 6
Phoenix Research Enhanced Index Series 5
Phoenix-Engemann Nifty Fifty Series 5
Phoenix-Seneca Mid-Cap Growth Series 6
Phoenix-Hollister Value Equity Series 5
Phoenix-Oakhurst Growth and Income Series 5
Phoenix-Schafer Mid-Cap Value Series 6
- ----------
*Phoenix Mutual Life Insurance Company purchased 1 share of the Phoenix-Goodwin
Money Market Series at a price of $10 per share on February 18, 1986.
ITEM 27. INDEMNIFICATION
The Declaration of Trust provides that the Fund shall indemnify each of its
Trustees and officers against liabilities arising by reason of being or having
been a Trustee or officer, except for matters as to which such Trustee or
officer shall have been finally adjudicated not to have acted in good faith and
except for liabilities arising by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of duties.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "Management of the Fund" in the Prospectus and "Management of the Fund"
in the Statement of Additional Information for information regarding the
business of the Adviser. For information as to the business, profession,
vocation or employment of a substantial nature of directors and officers of the
Adviser, reference is made to the Adviser's current Form ADV (SEC File Nos.
801-5995 for Phoenix Investment Counsel Inc.; 801-48190 for Phoenix Realty
Securities, Inc.; 801-52167 for Phoenix-Aberdeen International Advisors, LLC;
801-14813 for Duff & Phelps Investment Management Co.) filed under the
Investment Advisers Act of 1940, incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
Not Applicable.
C-4
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
and
101 Munson Street
P.O. Box 942
Greenfield, Massachusetts 01302-0942
ITEM 31. MANAGEMENT SERVICES
All management-related service contracts are discussed in Part A or B of
this Registration Statement.
ITEM 32. UNDERTAKINGS
(a) Not Applicable.
(b) Registrant undertakes to file a post-effective amendment using
financial statements which need not be certified, within four to
six months from the effective date of Registrant's
Post-Effective Amendment No. 24 with respect to the Nifty Fifty,
Seneca Mid-Cap, Growth & Income, Value and Schafer Mid-Cap
Series.
(c) The information called for by Item 5A of Form N-1A is contained
in the Fund's annual report to shareholders; accordingly, the
Fund hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Fund's latest annual
report, upon request and without charge.
(d) Registrant undertakes to provide the information specified
pursuant to Regulation S-K, Item 512 (Reg. ss.229.512), as
applicable, the terms of which are incorporated herein by
reference.
(e) Registrant undertakes to call a special meeting of shareholders
for the purpose of voting upon the question of removal of a
trustee or trustees and to assist in communications with other
shareholders, as required by Section 16(c) of the 1940 Act, if
requested to do so by holders of at least 10% of a Portfolio's
outstanding shares.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Hartford and the State of Connecticut
on the 30th day of April, 1999.
THE PHOENIX EDGE SERIES FUND
Attest: /s/ Thomas N. Steenburg By: /s/ Philip R. McLoughlin
----------------------- ------------------------
Thomas N. Steenburg Philip R. McLoughlin
Assistant Secretary President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on this 30th day of April, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Trustee
- ----------------------------------------------
Robert Chesek*
Trustee
- ----------------------------------------------
E. Virgil Conway*
- ---------------------------------------------- Treasurer
Nancy G. Curtiss* (Principal Financial and Accounting Officer)
Trustee
- ----------------------------------------------
Harry Dalzell-Payne*
Trustee
- ----------------------------------------------
Francis E. Jeffries*
Trustee
- ----------------------------------------------
Leroy Keith, Jr.*
/s/ Philip R. McLoughlin
- ---------------------------------------------- Trustee and President
Philip R. McLoughlin (Principal Executive Officer)
Trustee
- ----------------------------------------------
Everett L. Morris*
Trustee
- ----------------------------------------------
James M. Oates*
Trustee
- ----------------------------------------------
Calvin J. Pedersen*
Trustee
- ----------------------------------------------
Herbert Roth, Jr.*
</TABLE>
S-1(C)
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Trustee
- ----------------------------------------------
Richard E. Segerson*
Trustee
- ----------------------------------------------
Lowell P. Weicker, Jr.*
</TABLE>
By: /s/ Philip R. McLoughlin
------------------------------
*Philip R. McLoughlin, pursuant to powers of attorney filed previously.
S-2(C)
EXHIBIT 11
CONSENT OF PRICEWATERHOUSECOOPERS LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 27 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 17, 1999, relating to the financial
statements and financial highlights appearing in the December 31, 1998 Annual
Report to Shareholders of The Phoenix Edge Series Fund, which are also
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Financial Highlights" in the Prospectus
and under the headings "Independent Accountants" and "Financial Statements" in
the Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
April 28, 1999
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.84
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>